Electricity costs power down Atalaya profit

Power prices might have dropped, but European industrial players are still counting the costs of last year’s skyrocketing bills. Atalaya Mining (ATYM), which runs a copper mine in Spain, saw its profits for 2022 tumble even with a fairly strong copper price because of a €64mn (£56mn) rise in energy costs. Shareholders will feel this keenly, as the dividend is set at 30-50 per cent free cash flow. 

Sales for the year from the Riotinto openpit mine near Sevilla were down 11 per cent in the year, due to lower production as well as a 6 per cent drop in realised prices. The cash cost of production soared by 45 per cent.  

These factors sent Atalaya’s cash profit down 72 per cent, to €55mn. Chief executive Alberto Lavandeira said a solar plant would cut costs for 2023, alongside a new power purchasing contract. The company’s guidance for 2023 sees cash costs falling, however, and production is set to be flat around 53,000 tonnes at the minimum guidance, with the top end 55,000 tonnes. 

Analysts at broker Peel Hunt see profits rebounding quickly. “[This year] should see a substantial step up in profitability and cash generation for Atalaya’s operation,” they said. “Alongside our expectation of steady increases in copper prices, we expect steady increases in Ebitda quarter by quarter through the year.” Peel Hunt forecasts adjusted Ebitda of €158mn for 2023 and €231mn in 2024. 

This weaker year has shown there are also operational risks for a Europe-based company, and Atalaya’s valuation of 6.5 times forward earnings shows investors are more comfortable buying copper names based in the Americas, Africa and the Stans. While this is bang on its five-year average valuation, we think that is fairly undemanding for a quality company. Buy.

Last IC View: Buy, 191p, 14 Aug 2020