points - Strong copper price
- Copper market is in deficit
- Transition to EV’s and renewable sources of energy to increase demand
- Expansion plans
- Lowly shares valuation
- Net cash
- Strong cash conversion rate
points - Litigation issues
- Expansion execution risk
- Copper price could fall back from all time highs
Atalaya mining is a copper mining company listed on the AIM. Bouyed by a record copper price Q1 2021 profit surged to 33,702,000 euros a massive increase from the 2,931,000 euros profit posted in the Q1 2020. Cash generation remained similarly strong with operating cash flow standing at an impressive 36,803,000 both the profit and cash flow for the quarter are a material sum in relation to the 428.46 million pound market cap (credit google finance) in euros this is 505.58 million using to pound to euro conversion rate on 1 to 1.18.
On top of the strong copper price Atalaya saw production of copper increase 5.7% from 13,229 tonnes to 13,979 tonnes from Q1 2020 to Q1 2021. However, it is likely that over the long term the group can continue to increase copper production as a result of expansion plans at Proyecto Touro and Proyecto Masa Valverde. Admittedly, plans for expansion at Proyecto Touro have been rejected by the local government on grounds of environmental concerns, but the company has take steps to try and reduce the impacts of its mining meaning that it could soon be approved. Proyecto Masa Valverde seems promising and is 28km South West of it’s producing mine Proyecto Riotinto, exploration work is currently being done and the environmental permits are expected to be approved during 2022.
The group also has a very strong with net cash standing at 10,588,000 euros, even after paying 53 million euros (earlier than required) to Astor management. Admittedly there could potentially be legal issues with wether some interest on the payment should be paid, however it is unlikely that they will have a severe impact on the group especially keeping in mind it has ample cash to pay its bills.
From this we can see that the market is expecting for the copper price to fall dramatically and diminish . However, I believe that it is very unlikely to happen. Firstly, the average realised price of copper in Q1 2021 was 3.6 dollars per pound, the price currently is 4.29 dollars per pound around 19% higher. This means that if copper prices remain where they are and production stays the same, even though I believe that long term it could increase, revenue will increase by 19%. But since, miners have a relatively fixed cost base the will go straight into the bottom line, meaning that quarterly could increase to 50 million dollars. Secondly, I believe that the price of copper could potentially rise even more as the market has gone to a deficit from a surplus and electric vehicles use 3 times as much copper as ICE (internal combustion engine) vehicles, solar panels also use significantly more copper than fossil fuels.
For these reasons Atalya has strong ESG credentials, copper is vital towards the transition towards renewable energy. Moreover, it is planning to develop a 50MW solar plant at Proyecto Riotinto due to the abundance of light, this lowers emissions and also lowers operating costs, another plus for Atalya.
All in all a strong copper price, a strong balance and strong ESG credentials coupled with expansion plans all on a very low p/e implies that Atalya is a bargain.
I set my price to 900p compared to the current price on the 9th of August of 310p, however, if the copper bull market continues and the expansion plans do well I can see Atalaya rallying to 1000p and even beyond. STRONG BUY
Note: Results in two days August the 11th
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