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Why the Sandfire share price is the worst performer on the ASX 200 today

red arrow pointing down, falling share price
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The worst performer on the S&P/ASX 200 Index (ASX: XJO) on Thursday has been the Sandfire Resources Ltd (ASX: SFR) share price.

In afternoon trade the copper producer’s shares are down a disappointing 7.5% to $5.14.

Why is the Sandfire share price sinking lower?

Investors have been selling the miner’s shares following the release of its fourth quarter and full year update this morning.

Sandfire actually had its strongest quarter of the year in the fourth quarter. Copper production came in at 19,313 tonnes and gold production reached 13,541 ounces. This was a 7.7% and 44.8% increase, respectively, on its third quarter production.

Another positive was its ultra-low C1 costs for the quarter. Sandfire recorded C1 costs of 51 U.S. cents per pound, down 31% on the third quarter. Management advised that its reduction in C1 costs was due to a combination of record copper production, record gold production, and lower currency.

For the full year, copper production came in at 72,238 tonnes and gold production totalled 42,263 ounces. This was achieved with C1 costs of 72 U.S. cents per pound.

This ultimately led to Sandfire reporting unaudited FY 2020 revenue of $657 million, up 10.9% year on year. The miner finished the year with group cash and deposits of $291 million.

What about FY 2021?

Given this strong finish to the year, investors may have been hoping for more of the same in FY 2021.

Unfortunately, Sandfire’s guidance shows that this will simply not be the case. Which I suspect is the reason for the heavy selling today.

Management expects copper production to reduce to between 67,000 and 70,000 tonnes in FY 2021. The same is expected for its gold production, with management guiding to 36,000 to 40,000 ounces over the 12 months.

But perhaps worst of all, management is expecting its C1 costs to increase at least 25% to between 90 U.S. cents and 95 U.S. cents. That means a double whammy of lower production and higher costs, which is what no mining company shareholder wants to see.

In light of this, I can’t say I’m surprised to see the Sandfire share price tumbling notably lower today.

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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