Casimir Capital analyst Eric Winmill trimmed his price target and rating on Scorpio Mining (TSE:SPM) Monday after the miner released lower-than-expected fourth quarter production results from its Nuestra Senora operation in Mexico.
"Following the Q4/12 results, we have updated our model with actual numbers and metal prices. At the same time, we have revisited our forecasts for all projects with a bias for additional conservatism in most cases," notes analyst Winmill.
Tonnes milled in the fourth quarter were up 2% quarter-on-quarter to 129,000 tonnes, just ahead of Casimir's forecast of 128,300 tonnes, but silver grades were below the brokerage's estimate of 95 g/t and lower than the company's forecast of around 100 g/t.
When combined with lower than expected recoveries of 78% versus Casimir's 82% estimate, fourth quarter silver production of 296,200 ounces came in below the capital market firm's 321,200 ounces.
Base metal production also missed, with 3.3 million lbs of zinc, 347,000 lbs of copper, and 1.3 million lbs lead. This compared to Casimir's forecast for 3.8 million lbs of zinc, 410,000 lbs of copper and 1.6 million lbs of lead.
"While we continue to favor Scorpio Mining’s asset base and organic growth profile, the net effect of our revisions prompts a reduction in our NAV estimate to $1.48/share (vs. $1.60/sh old)," the analyst adds.
"For now, we adopt a conservative approach until we get further clarity on the path forward in the forthcoming economic studies."
Scorpio also reported that its El Cajob project continues to move forward, with the submission of the environmental impact assessment to start the permitting process. More details on the development are expected in the preliminary economic report, slated for the middle of this quarter.
Winmill slashed his price target to $1.60 a share, down from $1.70 a share previously, with his rating downgraded to a buy from strong buy.
"With a 38% return to our price target, our rating moves to Buy (vs. Strong Buy previously). We note that with a strong balance sheet (~$21mm cash as of Q3/12), existing operations and organic growth ahead, we see opportunity for a rating upgrade in the future as SPM delivers on portfolio opportunities."
Shares in Scorpio moved lower Monday afternoon, down over 0.85% to $1.15.