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Atalaya confident on 2023 prospects despite disappointing year


Atalaya Mining [LON:ATYM], the AIM-listed, Cyprus-based mining and exploration firm, operating a copper project in Southwestern Spain has published its 2022 Annual Results.

The company took a big hit in the year from increased electricity costs caused by the War in Ukraine, which hit its bottom line. Revenues were hammered like cast copper on a blacksmith’s anvil by record energy prices, down 10.8% from EUR405.7m (GBP359.3m) to EUR361.8m.

This was matched by operational costs expanding like a furnace bellows by 32.6% to EUR306.5m Profits were burned up as a result, with Atalaya reporting EUR30.9m against profits for 2021 of EUR132.2m, quenching basic earnings per share to 23.7 cents/share where in 2021 basic EPS was 96.7 cents/share.

Operational cash flows also fell, from EUR148.8m to EUR38.5m and the company’s net cash position was as a result ground down from EUR60m at the end of 2021 to EUR53m. Atalaya was not helped by a fall in the average copper prices year-on-year from USD4.22/lb during 2021 to USD3.96/lb during 2022, this fell further with the average price of copper in 4Q22 being USD3.7/lb. The spot price today (23rd March) is USD4.08/lb.

In marking his own homework, Alberto Lavandeira, Atalaya’s chief executive concluded that financial results were: “satisfactory” and the company had, “delivered good operating results for much of the year.” If an external invigilator was taking a view on these results, they might say “there is a need for improvement next semester” and “there is much to do”.

To be fair, the big drag on Atalaya’s results has been the rise in external rise in energy costs globally. Mining, especially base metal mining, is very energy-intensive and a sharp rise in energy costs can quickly put a dent in revenues, and there is very little that the management team at Atalaya can do about it. If Xi Jinping can’t move the needle, there’s not much anyone can do, and the two sides will just have to fight it out to a standstill until negotiation is the only way to advance.

Energy costs

However, the energy price spike has also affected every other business (perhaps excluding oil & gas), and other miners have not experienced the same level of decline. Atalaya has identified energy supply as the main area where they can improve performance, and as previously reported, the miner has focussed on electricity pricing issues in 2022.

Average electricity prices in Spain breached EUR500/MWh in March 2022. Prices had started to stabilise to EUR290/MWh in 3Q22 and a mild Spanish winter saw prices of around EUR170/MWh by 4Q22, helped by the Spanish wind fleet contributing to supply, but electricity prices remain historically high at EUR240/MWh for FY22, when compared to average prices of EUR65/MWh in FY21.

Atalaya previously noted that an increase or decrease in realised electricity prices of EUR100/MWh results in an increase or decrease, respectively, to the its annual operating costs of around EUR37m. To mitigate this Atalaya entered a long-term power purchase agreement signed at the beginning of this year providing 31% of the company’s estimated electricity requirements at a fixed rate 75% lower than the estimated average realised electricity price in 2022, and also below the rates realised in 2021 for 10-years.

The management team was also pleased to report in its results that it was building a 50MW solar plant at its Riotinto project, which will provide 22% of its electricity needs at the main site when up and running. Construction of the proposed solar plant is scheduled for 2H23 and when these two initiatives are combined, it will provide the company with an average final energy cost below EUR40/MWh.

Lavandeira said: “…I am proud of the decisive action we took to enhance the resilience of our operations, including securing a long-term fixed price power purchase agreement that we have benefitted from since the beginning of 2023. Contribution from our 50MW solar plant will provide additional price stability later this year.”

Production improves

On other fronts things started to turn in the right direction. The company reported improved performance in 4Q22 providing the basis for a stronger 2023 outlook with improved copper production of 14.0kt at an all-in sustaining cost of USD3.12/lb, with earnings of EUR18.2m.

As previously reported, Atalaya was planning to delist from TSX on 7th March. The company will continue to trade on AIM,  but as reported it pushed back its delisting to 20th March.

The company’s management, decided to delist from the TSX because over the last 36-months, daily trading activity in Atalaya’s ordinary shares on AIM has increased materially and, in the last twelve months, has accounted for around 99% of the aggregate trading volume on both platforms.

The company’s management decided – given the expense and time taken in the administration of maintaining a listing on the Toronto Stock Exchange that staying on the board was no longer justifiable.

Atalaya opened trading today at 325p today. The miner has offered a year-to-date return of -0.8%, a one-year return of -18.75% with its shares ranging between 183p and 417p over a 52-week period.

The company has a market cap of GBP454.5m.

The AIM-listed miner has not substantially returned the trust of the shareholders in 2022. The new PPA and eventual commissioning of the proposed solar farm will help it manage its costs. And with the increasing importance of copper as a strategic mineral in the transition to net zero story – a fact outlined by the EU declaring copper a strategic raw material by in its recent Critical Raw Materials Act – Atalaya are at least fishing in the right waters.

Bullish outlook

The firm’s management are bullish on the coming year, having recently published a Preliminary Economic Assessment of its Riotinto concession. The company is confident of expanding the remit of its main producing site, Proyecto Touro by developing a satellite mine at Proyecto Masa Valverde and is into construction on its E-LIX Phase I plant, which Lavandeira said: “…has the potential to unlock value and reduce costs throughout the Iberian Pyrite Belt.”

However, Atalaya needs the stars to align very soon to recover confidence. The brokers remain positive with Canaccord Genuity yesterday reiterating a ‘Buy’ recommendation with a downward revision of target price from 600p to 595p. Bank of America and Berenberg Bank both rated Atalaya as a ‘Buy’ in January, with the former upping its target price to 420p and Berenburg also increasing its target price to 470p.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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