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

Key Updates:

• Update on La Plata project: Recently, the company reported that it has received Government’s approval for its Mining Regime Modification for the La Plata project, located in Ecuador. As reported, the group can now proceed to develop its operations under the Medium Scale regime, according to Ecuadorian legislation. This would lead to legally extract and process up to 1,000 tonnes per day of minerals from the above mine.
• Strong profitability margin: In Q3FY21, the company reported its EBITDA and operating margin of 48.5% and 38.1%, respectively, as compared to the industry median of 39.2% and 26.6%, respectively. This indicates better cost management as compared to the industry median. Moreover, the company reported its net margin at 23.8%, as compared to the industry median of 15.3%.

• Decline in cash conversion period: In Q3FY21, the company reported a lower cash conversion period of 44.2 days, as compared to the industry median of 53.2 days. A lower time indicates that the company takes lower time to convert its investments to cash flows.

Risks associated with the investment:

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, soared from 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 coupled with an increase in share-based payments. Despite the higher costs, the company’s 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. This was supported by higher income from operations coupled with lower accretion costs, decline in interest and other expense and an inclusion of foreign exchange gain.

  Valuation Methodology (Illustrative): Price to CF based

  Analysis by Kalkine Group 

Stock Recommendation:

In 9MFY21, the company reported its cash from operations of USD 22.8 million, as compared to USD 10.1 million in pcp. This indicates higher liquidity and is a key positive. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Aura Minerals Inc, Magna Gold Corp for the purpose. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 0.45 on March 07, 2022.

One-Year Technical Price Chart (as on March 07, 2022). Source: REFINITIV, Analysis by Kalkine Group

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