XCAP Securities has restarted coverage of Richland Resources (LON:RLD) with a ‘buy’ rating and a 19 pence price target. The group currently trades at 9.62 pence.
Analyst Sam Brindle believes the group, one of the world’s foremost mine to market producers of coloured gemstones, has weathered the storm of the recent financial crisis and looks set to diversify its mineral portfolio.
“With its flagship Merelani tanzanite mine (in Tanzania) once again generating positive cash flows, the strategy to diversify into complimentary minerals is set to be the key to extracting value for investors,” he said.
Richland has an option to acquire an Australian sapphire project until the end of April and has plans to mine Tsavorite, a green emerald-like stone, near its flagship project.
Like much of the luxury goods market and gemstone producers in particular, Richland was battered by the financial crisis as prices for precious stones collapsed across the board during 2008 and 2009, Brindle said.
After paring costs and fine tuning operations the company returned to profitability in 2010. Following a name change and further restructuring it is now well positioned to build on these gains and capitalise on a recovery in the gemstone market, he believes.
According to the analyst, either of the potential new projects could prove to be a game changer for Richland which has historically been a one mine one mineral company.
“We value Richland on a 20 year life-of-mine discounted free cash flow basis for its wholly owned Merelani mine. Our base case scenario conservatively values the company at a net present value of US$33.9 million, with a 12-month price target of 19 pence and we reinitiate coverage with a BUY recommendation,” Brindle added.