Spanish copper miner Atalaya Mining (ATYM) has seen its share price drop back recently, but then the situation has been similar on most producers in this sector and has come as a result of weakness in the commodity price rather than anything company specific. Given its industrial uses, coupled with the expected future supply and demand dynamics, it is hard to see how the metal won’t be trading at far higher levels in the future, following a recent significant drop from nearly $3.30/lb to around $2.70/lb. In my opinion this drop represents a decent buying opportunity, although there is still always a risk of an economic crisis which would likely see a more prolonged period of copper price weakness were it to happen. When it comes to copper miners listed in London that are actually already in production, there isn’t as much choice as you might have imagined, especially once you move away from the larger mining groups.
One that I do like which falls into the category of being a producer, but still at a fairly early stage and with plenty of opportunity to grow, is Atalaya, and I last covered this company back in April 2017 when its shares were trading at 144p to buy. Despite the recent dip it has performed well since then and now trades at a share price of around 217p, and I can see plenty more to come if you continue to remain invested with a longer term view. The company has been doing well operationally at its Proyecto Riotinto in southern Spain, with record production of 10,446 tonnes achieved in Q2 2018 (up until the end of June), and that continued on from a good Q1 to give production of just under 20,000 tonnes for the first six months of the year. At the same time copper recovery from the ore has also been on the rise, although also cash cost and all-in sustaining costs have been on the rise. Like a number of its peers, Atalaya is reliant on copper prices staying buoyant in order to keep its operations profitable, and that is the main risk here with all-in sustaining costs of $2.49/lb during H1 – although these were in line with guidance.
Revenue for H1 2018 was significantly higher than the previous year, at €101.5 million compared to €79.1 million, and this resulted in profit after tax more than doubling to €24.5 million for H1, compared to just €11.8 million for the same period in 2017. The company is also fairly cash rich, and at the end of H1 had unrestricted cash balances of more than €51 million. It is also generating strong levels of cash flow, with net cash flow from operating activities, after changes in working capital, of more than €30 million in the first six months of the year. Expansion at its mine is ongoing to increase production, and with proven and probable reserves of 680,000 tonnes of contained copper, plus another 830,000 tonnes in the measured and indicated resources category, the mine should continue to operate for many years to come, even once it reaches its 15Mtpa capacity once expansion is completed.
In addition to the growth prospects from its existing mine, it also has the potential for further expansion via Proyecto Touro, in northern Spain, and a pre-feasibility study was recently completed. This report showed proven and probable reserves of 392,000 tonnes of copper and 2.1 million ounces of silver, and with all in sustaining costs of $1.85/lb. It will cost $165 million upfront to get the mine to production and it would then have a life of eight years, and during that time is expected to produce free cash flow of around $60 million per annum – although that will largely be dependent on copper prices during that period of time. I like the fact that the company has these two projects, as the producing one underpins the £305 million market cap it commands, and the latter, alongside the expansion of Riotinto, gives attractive growth potential. I still view this as a buy and hold from these levels and think that it offers decent value at the current share price.
Filed under: Atalaya Mining, Chris Oil, Angus Energy, Julie Meyer, Tern, Frontera Resources, Surface Transforms
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