Shares in Meeka Metals Ltd (ASX: MEK) have more than halved in recent months, with the analyst team at Morgans convinced this represents an attractive buying opportunity.
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Weak production disappoints
Meeka released its quarterly report late last month and revealed that gold production had fallen sharply, down from 9174 ounces in the previous quarter to 6083 ounces.
The company reported mine operating cash flow of $25.8 million and net mine cash flow of $10 million, "after significant non-recurring growth capital investment ($15.8M) in new mines and expanded infrastructure''.
The company's cash on hand increased from $37.3 million in the December quarter to $50.1 million, with the company unhedged and holding no debt.
Meeka Managing Director Tim Davidson said regarding the quarterly:
It was a frustrating quarter from a production perspective but we did see significant improvement in process plant throughput. We expect this to continue as the mill feed transitions to increasingly fresh ore from underground over the coming quarters, which will also deliver an increase in head grade. To this end our investment in new mines, including our next underground mine at Turnberry, will further increase head grade through the plant with more targeted underground mining and less reliance on open pit ore and stockpiles. Pleasingly our cash build continued even after significant, non-recurring, capital expenditure on growth projects.
Part of the company's production issues stemmed from significant rainfall, which impacted operations at its open pit mines, reducing access to higher grade ores.
This in turn disrupted the company's plans to stream grades together, "resulting in an increased reliance on processing lower grade stockpiles accumulated over the preceding 12 months since mining commenced''.
Shares still looking cheap
Morgans said the quarterly also missed expectations on the cost front.
The analysts added:
We maintain our buy rating, but view the next two quarters as critical as Meeka needs to demonstrate clear grade improvements to remain on track for the anticipated step-change in free cash flow into FY27. Following a tough third quarter, the next 6 months represent a key inflection point for Meeka, where delivery of key operational milestones will determine balance sheet strength. The commencement of underground stoping in the latter part of the quarter is expected to lift grades, drive throughput efficiencies and underpin stronger cashflow into FY27.
Morgans said in addition to the current operations, they expected further high grade exploration success and resource conversion.
Morgans has a price target of 35 cents on Meeka shares compared with the current price of 13.25 cents.
Meeka is valued at $412.4 million.
