If you want exposure to copper and are looking to invest in an earlier stage outfit that is already in production, then your choice of UK listed companies is actually fairly limited. The majority are either still at the exploration/development phase, or are large FTSE listed miners, and in many cases copper is just one of many metals that are being produced, with the odd exception. I’ve though been a fan of Atalaya Mining (ATYM) and its operations in Spain for some time now, and recent news from the company hadn’t changed my view that it offers great longer term potential as long as copper prices remain buoyant, and all the indications are that this will be the case as there are likely to be shortages in the coming years...
The company's Proyecto Riotinto operation is designed around a long term cut-off grade of about $2.6/lb, and I would be very surprised if copper doesn’t trade significantly higher than that on average over the coming years. Operationally, it has continued to make good progress and the update that it provided recently for Q1 2019 was positive, with full year guidance of 45,000-46,500 tonnes of copper (versus actual production of 42,000 tonnes in 2018), and so far cash costs are coming in lower than the previously estimated $1.95-2.15/lb – exact figures will come in the next set of financials. Its expansion plans are also going well, with the 15Mtpa upgrade expected to be at full capacity by the end of Q2 2019.
In terms of reserves, it has 197 million tonnes of ore in the proven and probable category, at a grade of 0.42%, which translates to around 827,000 tonnes of copper, so there is plenty of life left in the operation – at current annual production levels it would take around 18 years to mine all of the copper. There is also further upside from ore still in the Resources category, plus from ongoing further exploration, with more than €2.5 million budgeted for further drilling during the current year. Atalaya also owns the low-cost Touro project, where it will be targeting 30,000 tonnes of copper per annum once it receives a permit to go ahead with the mine and at that stage it would take roughly two years before the first copper is produced and a further nine months to ramp it up to capacity. Additionally, it would also produce around 70,000 ounces of silver per annum and, assuming it can find the $200 million capex needed, it would be expected to generate total free cash flows of around $490 million over its life.
During 2018 the company made an annual post-tax profit of more than €34 million, was debt-free - although there is a longer term outstanding consideration of €53 million relating to the original acquisition of the assets - and had over €33 million in the bank. Taking all of this into consideration, I believe that it is cheap at the current market cap of around £320 million. There have been some concerns over a court case brought by an environmental group against the local government and Atalaya as joint defendents but, although the courts found in favour of some of the points raised, it seems very unlikely that there is going to be any impact on its operations. So for me this definitely remains a buy at around the 230p level, and the investment case looks even stronger now than it has done previously, in my opinion.
Filed under: Atalaya Mining, Inspirit, Management Resource Solutions, Woodford, Starcom, Polymetal, PZ Cussons
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