Atico Mining Corp

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.

• Update on El Roble Property Royalty Title Renewal: On December 29, 2021, the company reported that it has entered into an agreement with the National Mining Agency in Colombia related to the ongoing royalty dispute covering the El Roble property. Both the parties agreed to settle the dispute via binding arbitration at the Center for Arbitration and Conciliation of the Bogota Chamber of Commerce for the purposes of seeking an expedited resolution to the ongoing claim, which is currently being resolved in Colombian courts. As per the arbitration rules, the final decision by the tribunal takes approximately six to twelve months from the commencement of the arbitration process. Notably, as per the Colombian legal counsel, ATY continues to believe that it has a strong case for a positive outcome in an upcoming arbitration.

• Growth in cash flows: For 9MFY21, the company reported cash from operations of USD 22.813 million, significantly higher than USD 10.123 million in pcp. The above is supported by improved profitability. Continuation of the above trend is likely to support the company’s overall liquidity.

• Solid demand dynamics: The company witnessed a solid demand for its commodities and witnessed gold sales and silver sales of 8,935 oz and 33,859.6 oz, respectively, in 9MFY21, higher than 6,689 oz and 27,230.6 oz, respectively in pcp. Moreover, sales of copper stood at 14,419.6 oz in 9MFY21, higher than 12,649.0 oz in pcp.
  

Risk: Due to volatility in the international commodity prices, the company might witness a slide in the realization price, which subsequently dampen the overall performance of the company.

Q3FY21 Financial Highlights:

• ATY announced its quarterly results, wherein the company posted its revenue of USD 31.807 million, as compared to USD 14.064 million in the previous corresponding period. The surge was supported by higher gold (5,096.8 oz v/s 2,209.2 oz in pcp) and silver sales (18,084.7 oz v/s 9,314.4 oz in pcp). Moreover, higher realization price of copper (USD 4.26/lb v/s USD 2.98/lb in pcp) also supported the growth.
• The quarter was marked by higher general & administrative expense and increase in share-based payments. Income from operations stood at USD 12.116 million, as compared to USD 3.769 million in pcp.
• Net income stood at USD 7.555 million, as compared to a net profit of USD 1.875 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): Price to CF based

Analysis By Kalkine Group

Stock Recommendation:

For Q3FY21, the company reported its operating margin and net margin of 38.1% and 23.8%, respectively, as compared to the industry median of 27% and 12.9%, respectively. The above indicates improved operational efficiencies than the industry median. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Forage Orbit Garant Inc, Harte Gold Corp etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last traded price of CAD 0.41 on December 31, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on December 31, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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