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 Updates:

• Completion of Integrated Tailings Dewatering Plant: Recently, the company reported the completion of Integrated Tailings Dewatering Plant (ITDS), which was designed to receive flotation tailings from the El Roble mill and processing facilities. This project is expected to reduce the dependence on external freshwater resources by recycling 75% of mill process water without losses to the environment through seepage and evaporation. Notably, the project is designed to process ~1,200 tonnes per day (D.S.) of copper flotation tailings materials, increasing the density from 60-65% w/w solids to 88% w/w solids.

• Robust Margins: At the end of Q3FY21, the company reported EBITDA margin and operating margin of 48.5% and 38.1%, respectively, higher than the industry median of 41.4% and 27%, respectively. Net margin stood higher at 23.8% in Q3FY21, as compared to the industry median of 12.9%. This indicates higher operational efficiencies, which is encouraging.
  

• Lower cash conversion period depicts higher efficiency: The company reported its cash conversion period of 44.2 days in Q3FY21, lower than the industry median of 54.4 days. This indicates that the company is quickly converting its inventories and raw materials into cash flows as compared to the industry median.

Risks:

The company’s operations are correlated with the international commodity prices, while a price voltility would dampen the company’s overall realisation and cash flow.

Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• ATY announced its quarterly results, wherein the company reported a revenue of USD 31.8 million, significantly higher than USD 14.0 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, a higher realization price of copper (USD 4.26/lb v/s USD 2.98/lb in pcp) also supported the appreciation.
• The quarter was marked by higher general & administrative expense and an increase in share-based payments. Income from operations stood at USD 12.1 million, grew from USD 3.7 million in pcp.
• Net income stood at USD 7.5 million, as compared to a net income of USD 1.8 million in pcp.     

 Valuation Methodology (Illustrative): Price to CF based

 Analysis by Kalkine Group

Stock Recommendation:

For 9MFY21, the company reported cash from operations of USD 22.8 million, significantly higher than USD 10.1 million in pcp. This is supported by higher profitability. Continuation of the above trend is likely to support the company’s overall liquidity. 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 Sherritt International Corp, Titan Mining Corp and Forage Orbit Garant Inc. for the purpose. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 0.395 on January 27, 2022.

One-Year Technical Price Chart (as on January 27, 2022). Source: REFINITIV, Analysis by Kalkine Group  

  Technical Analysis Summary: 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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