Atico Mining Corp (TSXV: ATY) is engaged in copper-gold mining and related activities. Its activities include the exploration, development, extraction, and processing in Colombia.  It earns revenue from contracts with customers related to its metals concentrate sales.

Key highlights 

• Resumes Full Operations at El Roble mine: The company just published its operational results from its El Roble mine for the three months ending March 31, 2022. The quarter's production was 4.82 million pounds of copper and 2,636 ounces of gold in concentrates, an increase of 7% and 24%, respectively, over the same period in 2021.

 

 

 

 

• Robust financial matrix: Despite the chaotic environment, the Company maintained its pace and saw energetic performance throughout its revenue, income from operations, and net income; nevertheless, net income dropped in the reported period of FY 2021 due to greater losses on derivative instruments. The Company is maintaining its winning streak and has seen increasing scale on a sequential basis, which is encouraging.   
• Robust cash flow from operations: Company generates significant cash flow through the operation of the El Roble mine and is developing its high-grade La Plata VMS project in Ecuador. In FY 2021, the company’s cash from operations increased to USD 29.8 million, against USD 17.8 million in pcp.
• Strong guidance for FY2022: The company's management is optimistic about its operations, estimating that it would handle between 280,000 and 300,000 tonnes in fiscal year 2022. Furthermore, copper recovery will be greater than 91% and gold recovery will be greater than 61%, resulting in copper output of between 6,800 and 7,500 tonnes and gold production in the range of 12,500 and 16,500 ounces.
• Received government's approval of mining regime: As part of the permission and licensing procedure required to begin construction of the mine facilities, Atico has received a resolution from the sectoral government approving the La Plata VMS project for economic appraisal.
  
• Gaining momentum on progressive basis: Despite the turmoiled period in 2021, the Company maintained its pace and witnessed spirited performance across its gross margin, operating margin and net margin. However, in FY 2021, the net margin witnessed some decline. The Company is continuously working efficiently; thus, its presence is increasing along volume, which is appreciable. We believe the momentum to continue in the foreseeable future, as the Company has big capital investment plans to support future growth.

 

 

 

 

 

 

• Minimizing cash conversion days: On a sequential basis, the company is lowering its cash cycle days, indicating that the company is converting its investments to cash flows in less time, which is commendable. In FY2021, the firm recorded a cash conversion period of 84.5 days, the shortest in the previous four years.

 

 

 

 

 

 

• Trading at discounted valuations: The company’s shares are available at an NTM EV/EBITDA multiple of 0.6x compared to the industry (Basic Material) median of 4.2x. while on NTM Price/Cash Flow multiple the stock is trading at 1.5x compared to 3.9x. This implies that the shares are trading at deep discount against the industry. The stock is undervalued on multiple valuation parameters. The table below reflects the picture.

 

 

 

 

 

Risks associated with investment:

The performance of the company is directly correlated with the metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance. Moreover, it is largely dependent upon the operation of the El Roble mine for its revenue and profits. If for any reason, production at the mine is reduced or stopped, the Company’s anticipated revenues and profits would decrease significantly. 

Financial overview of FY 2021 (Expressed in United States Dollars)

Source; Company Filing

• Increase in sales: The company’s sales for the year increased 22% to USD 72.7 million when compared with 2020. Copper and gold accounted for 89% and 11% of the 38,783 dry metric tons of concentrate sold during the year. 
• Strong income from operations: Even on the back of higher G&A expenses and higher share-based payments, the company clocked income from operations at USD 21.3 million against USD 12.7 million in pcp.
• Income before income tax in FY 2021, stood at the elevated level of USD 15.8 million, against USD 12.7 million in pcp. However, the company realized higher loss on derivative instruments at USD 3.4 million, against USD 0.6 million in pcp.
• Slight decline in net income in the reported period of FY 2021, the Company’s net income witnessed slight dent to USD 7.0 million, compared to USD 8.3 million in pcp. This decline was mainly due to higher derivative loss and income tax expense.
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 15.88% of the total shareholding. Goodman (Jonathan Carter) and Konwave AG hold the company's maximum interests at 3.41% and 3.34%, respectively. The company's institutional ownership stood at 3.52% and ownership of the strategic entities stood at 12.39%. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation 

The corporation just released its FY 2021 results, which showed a profit from mining operations of USD 28.0 million and a net profit of USD 7.0 million. ATY's El Roble mine produced 18.1 million pounds of copper and 11,018 ounces of gold in concentrate. As a consequence, the Company produced its best single-year revenue and income from operations since establishment, amid a very strong metal price environment. These results reinforce the company's financial sheet and cash position.

Furthermore, the company released its El Roble mine operational results for the three months ending March 31, 2022. Production for the quarter was 4.82 million pounds of copper and 2,636 ounces of gold in concentrates, representing increases of 7% and 24%, respectively, over the same time in 2021. Importantly, it got official clearance of the mining regime and may now proceed to grow its activities under Ecuadorian legislation's Medium Scale regime. Therefore, based on the above rationales and valuation, we recommend a "Speculative Buy" rating on the stock at the last closing price of CAD 0.34 as on May 10, 2022.

One-Year Technical Price Chart (as on May 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV

*Recommendation is valid on May 11, 2022, price as well. 

Technical Analysis Summary

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