Company Overview
Atalaya Mining Plc (ATYM), formerly known by Eastern Mediterranean Resources Public Limited, is a mineral exploration and development company. The company along with its subsidiaries explores and develops base and precious metals. It focuses on the development of two projects including Rio Tinto Copper Mine in Spain and Proyecto Touro Project in Spain. The Rio Tinto Copper Mine is involved in the exploration of copper, and Proyecto Touro also carries out copper exploration activities. The company also has exploration licenses in the copper-mining districts of Cyprus, and 1.8% stake in KEFI Minerals Plc, which carries out the exploration activities in the UK. The company carries out exploration activities in Cyprus, Slovakia and Spain. Atalaya was incorporated in the year 2004 and is headquartered in Nicosia, Cyprus.

Key Details


Key Management
Alberto Lavandeira: Chief Executive Officer, Director

Cesar Sanchez: Chief Financial Officer

Recent Developments
On 15^th January 2019, Atalaya Mining Plc posted its fourth quarter Q4 FY18 operational update and FY19 guidance.
On 22^nd November 2018, Company reported its third quarter earnings (Q3 FY18) for the period ended 30^th September 2018.

Financial Highlights



(Source: Company filings, LSE)

Key Takeaways from Q3 FY18 Interim Results (period ended 30^th September 2018)
Company’s revenue increased 19.8% to €42.8 million during Q3 FY18 against the revenue of €35.7 million reported in the corresponding period of the previous year, on account of higher sales volume and higher realised prices. Realised price of copper during Q3 FY18 was $2.89/lb against the realised price of $2.66/lb during the corresponding period of the previous year. During the third quarter of FY18, the company reported an EBITDA of €7.7 million, down by 17.2% compared to the EBITDA of €9.3 million delivered in Q3 FY17, primarily due to the higher operating costs over sales. Post-tax profit during the third quarter stood at €3.1 million, compared to the post-tax profit of €2.7 million in Q3 FY17, increased by 14.8% on a year-on-year basis. Atalaya's working capital surplus declined during the third quarter of FY18, on account of an increase in capital expenditure particularly related to the expansion project. Company’s diluted earnings per share (DEPS) stood at 2.2 cents in Q3 FY18, compared to the Diluted EPS of 2.3 cents in Q3 FY17, down marginally. The company reported net cash flow from operating activities after changes in working capital at €14.9 million for Q3 FY18, an increase of 15.5% on a year-on-year basis.

Q4 FY18 Operational Update
Total copper production during FY18 at Proyecto Riotinto was 42,114 tonnes, increased by 13% compared with 37,164 tonnes produced during FY17. Production of 11,172 tonnes of copper during the fourth quarter of 2018, again made a new quarterly record. Company processed around 9.8 mt of ore with a recovery rate of 88.30%. Throughput has increased to 9.8mt in FY18 from 8.8mt in FY17. As per the guidance provided by the company, company forecasted copper production to be in the range of 45,000 to 46,500 tonnes in FY19 and production to be in range of 50,000-55,000 tones in FY20. 

SWOT Analysis

Strength

Reserves & Resources: Substantial reserves and resources help the company to meet the increasing demand in the market. The company's Proyecto Rio Tinto (PRT) project has estimated proved and probable reserves of 153 million tonnes (Mt) containing 0.68 Mt of copper (Cu) at a grade of 0.45% Cu. In addition, it has total measured and indicated resources of 193 Mt at a grade of 0.43% Cu, and inferred resources of 23 Mt at a grade of 0.48% Cu.

Access to Infrastructure:Atalaya has projects and reserve deposits in close proximity to mining transportation infrastructure. This helps the company in reduced logistics expenditure, economical flow of mining shipment and fewer transportation hazards and risks.

Weaknesses

Lawsuits: Lawsuits filed against Atalaya might impact its operations, while damaging its reputation in the industry. In the usual course of its business, the company is exposed to a variety of legal hurdles from time to time. In June 2018, the local people in Spain filed a lawsuit against Atalaya regarding the Touro mine exploration.

Opportunities

Increasing Global Usage of Copper: Increasing global usage of copper may lead to a potential increase in demand for the company's products. According to the International Copper Study Group (ICSG), global copper usage stood at 23,733 metric tonnes (Mt) in 2017, and it is expected to grow 2.3% to reach 24,283 Mt in 2018.

Threats

Operational Risks: Metal and mining companies are subject to various risks associated with the industry and its processes. These risks range from prospecting to extraction and getting the product to the market. The risks include project risks, social risks, technical risks, and product chain risks.
Rising Labour Shortage in Europe: The EU's labour force was estimated to shrink by 0.2% a year between 2000 and 2030.

Ratios

(Source: TR)

Commentary
During Q3 FY18, gross margin fell significantly on account of the increased cost of production, production costs surged by 30.05 per cent. Company’s reported EBITDA margin of 17.9% for Q3 FY18 was considerably higher than the industry median of 11.9%, but margin fell significantly compared with the EBITDA margin of 26% in Q3 FY17, primarily on account of higher operating cost over sales volume. Net Profit Margin in Q3 FY18 stood at 7.3%, higher against the industry median of 4.6%. Return on equity for Q3 FY18 stood at 1.1%, whereas the industry median was 1.7% during the same period, ROE of the company was more or less in line with the industry median. Liquidity position in terms of current ratio improved considerably on a year-on-year basis, but the company's liquidity position fell below the industry median of 1.83 in Q3 FY18. During the third quarter of 2018, the company's current ratio stood at 1.33. Atalaya has zero long-term debt as compared with the industry median Debt-Equity ratio of 0.24. Company's asset turnover ratio of 1.6 was broadly in line with an industry median of 1.8, but on year-on-year basis, company's efficiency in generating sales out of its assets has improved significantly.

Valuation Methodology


While valuing Atalaya Plc on EV/EBITDA Multiple, we have considered Next Twelve Month (NTM) EV/EBITDA of its peers, which were Central Asia Metals PLC (NTM EV/EBITDA stood at 7.9x), Anglo Pacific Group PLC (NTM EV/EBITDA stood at 6.9x), Kaz Minerals PLC (NTM EV/EBITDA stood at 5.4x), Lundin Mining Corp (NTM EV/EBITDA stood at 5.3x), and Anglo American PLC (NTM EV/EBITDA stood at 5.6x).

Note*: All forecasted figures have been taken from Thomson Reuters.

Stock Performance (5Y Price Chart)

(Source: TR)

At the close (26^th Feb 2019), Atalaya Plc share was quoting at GBX 233, down by 1.89%. Total outstanding market capitalisation of the stock stood at £316.26 million. During the last one-year shares have reached a 52w high of GBX265.0 and a 52w low of GBX 188.0. At the close shares were trading 12.08% below its 52w high and 23.94% above its 52w low, indicates stock has potential to move up further. Also, the shares are trading slightly above its 200 simple moving days average, which is a bullish indicator from an investment point of view. During the last one-year stock has delivered a 17.38% price return and on a Year-to-Date basis, the stock is up by 11.2%. Stock's Beta stood at negative 0.27, which shows price movement in the Atalaya's shares has a remarkably lower correlation with the movement in the benchmark. Hence, we assume the fog of Brexit hovering around Britain has hardly any impact on this particular stock.

Conclusion
Atalaya's increased production guidance for FY2018 followed by enhanced recovery levels will drive the future growth. Based on the strong growth prospect of the company we have given a BUY recommendation with a high single digit upside potential based on 6.2xNTM EV/EBITDA on FY19E EBITDA.

Note- GBp or GBX are interchangeably used for Pence Sterling. 

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser. Our publications are NOT a solicitation or recommendation to buy, sell or hold.