The past six months have been tough for London’s listed copper miners. Shares in Chilean giant Antofagasta (ANTO) and the normally stable Central Asia Metals (CAML) are both down by more than a fifth, while investor doubts have wiped away almost half of KAZ Minerals’ value. Bucking this trend is Atalaya Mining (ATYM), whose stock has held up despite its higher relative cost profile, and a copper price weakened by fears over trade wars and economic growth. As we detailed in our March tip, there are good reasons to rate the Spanish miner, which has two growth projects, a strong management team and a big-ticket investor base that includes trader Trafigura. We can now add the possibility of a business sale into the mix.
Strategic review
Growth projects
Management track record
Copper deficits
Astor dispute
Copper prices
That’s because two weeks ago, Reuters reported that Atalaya was “looking for a buyer”. Citing two banking sources, the piece claimed that the miner’s broker, Bank of Montreal (BMO), had been instructed to help with the sale. Although it provided the usual cautions, Atalaya acknowledged it “is undertaking a review to evaluate the company's strategic options”.
The news pushed the stock price up by as much as 15 per cent. While that trims any eventual takeover premium, it certainly doesn’t mean Atalaya will not find a willing suitor.
For one, with the resurrection and consistent performance of its Riotinto mine, Atalaya has proved itself a canny operator. In both the second and third quarters of this year, production surpassed 10 thousand tonnes (kt), leading to an upgrade in full-year guidance. Cash operating costs have also come in below the full-year forecast range of $2.15-$2.30 (£1.65-£1.76) per pound, and could receive a further margin boost once a fully funded upgrade is completed in the second quarter of 2019. By then, processing capacity will have lifted from 9.5 million tonnes per annum (Mtpa) to 15Mtpa.
A second growth project, Touro, is currently undergoing final submissions. Assuming the mine gets the green light, the prize would be an increase in annual output of 30,000 tonnes of copper, and all-in sustaining costs of $1.85 a pound net of silver concentrate credits. Based on a long-term copper price of $3 a pound, Atalaya believes the development should carry a post-tax net present valuation of $180m.
Touro will also require pre-production capital expenditure of $165m, which might help to explain appetite for a sale. Atalaya does not have much cash, and may have concluded that weak copper prices might complicate debt or equity fundraising. At the same time, the sector is awash with miners who lack projects, but are bullish about copper, whose medium-term supply is likely to fall short of mid-case demand projections.
Another possibility is that long-term shareholders Trafigura, Yanggu Xiangguang Copper, Liberty Mutual and Orion Resource Partners, which collectively own 62 per cent, may want an exit after waiting years for the company to recover ground.
ATALAYA MINING (ATYM) | ||||
ORD PRICE: | 252p | MARKET VALUE: | £345m | |
TOUCH: | 251-258p | 12-MONTH HIGH: | 265p | LOW: 154p |
FORWARD DIVIDEND YIELD: | 2.1% | FORWARD PE RATIO: | 8 | |
NET ASSET VALUE: | 198¢* | NET CASH: | €51.4m |
Year to 31 Dec | Turnover (€m) | Pre-tax profit (€m)** | Earnings per share (¢)** | Dividend per share (¢) |
2015 | 0 | -15.0 | -18.1 | nil |
2016 | 98.8 | 0.8 | 11.1 | nil |
2017 | 161 | 21.9 | 15.6 | nil |
2018** | 201 | 52.5 | 36.0 | nil |
2019** | 220 | 60.3 | 38.0 | 6.0 |
% change | +9 | +15 | +6 | - |
NMS: | 2,000 | |||
BETA: | 0.8 | |||
£1=€1.14. *Includes intangible assets of €73.0m, or 53¢ a share **Peel Hunt adjusted pre-tax and EPS numbers and forecasts. |