Copper return brings Atalaya back into contention

According to BMO, cathode output was up 4.3 per cent year on year to a rate of 9.2 million tonnes a year.

The second key figure for the red metal concerns the impact of Covid-19 on production. Specifically, the Federation of Copper says that at Codelco, the state-owned Chilean miner and a top producer of copper, 3,000 workers have been infected. BMO has forecast that supply will be balanced or even in deficit this year as a result of  the uptick in demand and Covid-19 shutdowns. 

The reaction from the market has been to start buying copper. It was already moving in the right direction for miners, climbing from just over $4,600 a tonne (t) or $2.09 per pound (lb) in March to almost $6,000/t at the end of June. This latest supply scare has pushed it over $6,500/t, the highest point since January. 

London-listed copper miners have followed a similar path. The largest by market capitalisation, Antofagasta (ANTO), is up around 60 per cent since March and is now trading at the same level as January. Central Asia Metals (CAML) is up, but not yet back to the January level. Atalaya Mining (ATYM) is also behind the January level of 200p, at 166p. 

Atalaya, which operates the Riotinto mine in Spain, is in its first year of expanded production. The company has just brought its ore processing capacity up to 15m tonnes a year (tpa) from 9.5mtpa. This has taken its copper production up from 40,000t a year to the 55,000-58,000t guided for 2020.

As a result, broker Peel Hunt sees cash profits rising from €61m (£55m) last year to €165m in 2021. The downside here is the forecast for 2020, which is €46m, as well as a fall in the operating margin from 19.5 per cent in 2019 to 10 per cent this year, before a forecast recovery to almost 40 per cent in 2021. 

Atalaya is a pricier operator than its London-listed competitors, with a cash cost per tonne of copper at $4,387/t in the March quarter, compared with Antofagasta’s $3,748/t before its gold production is taken into account. This is the price for operating in euros and on a smaller scale, although the upside is the proximity to European buyers while higher cost producers also have more to gain in profitability from rising prices.

As environmental, social and governance requirements in supply chains tighten, local copper production will be more prized and premiums will come into play. Atalaya’s advantaged position during the pandemic was an early indicator of this, only shutting down for a few days while the major producers in South America have faced much more disruption.