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Sierra Rutile wins sales contract for 2014, but downgrades 2013 production forecast

Last updated: 03:04 20 Nov 2013 EST, First published: 04:04 20 Nov 2013 EST

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Specialist minerals producer Sierra Rutile (LON:SRX) told investors it has agreed a 50,000 tonne sales contract with a major pigment producer.

The shipments will be made next year, and the deal means that over 75% of the group’s first quarter production is now contracted.

That said, the company also revealed today that it has trimmed its production guidance for the current year to 120,000 tonnes, down 4% from 125,000 tonnes.

"We are very pleased to announce a sales contract of this significance,” said chief executive John Sisay.

“Despite the current market softness, rutile sales through 2013 will show significant growth over 2012 sales as the company continues to see strong demand for its premium rutile product.

“Whilst we have slightly reduced our production target for 2014 due to market conditions, I am pleased with the company's operating performance as we near the end of the year which positions the company well for continued production growth in 2014.”

Yesterday, Sierra Rutile shares jumped by almost a quarter as it confirmed a bid approach from un-disclosed ‘interested parties’.

Pala Investments is the group’s majority shareholder, with a 54.4% stake at the end of 2012, though a group of institutions also has almost 40%.

City broker Sanlam Securities reckon the company’s valuation is significantly above the current level, even double or higher.

“We have said previously that Sierra Rutile represents the best heavy mineral play on the London Stock Exchange, although we recognise the lack of liquidity means only a few investors can be involved.

Sierra Rutile produces possibly the best rutile product globally and any potential acquirer will be looking to take advantage of the current cyclical low point in the commodity’s price.”

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