RCKS Talk

31-Jan-2019

Atico Mining Corp

Guidance Suggests More than the Market Cap Implies

Impact: Positive

Atico reported production results for Q4/18 setting records for both the quarter and the full-year 2018. We expect the steady ramp-up at El Roble to continue with 2019 guidance suggesting the company is poised to have another record year. We view Atico as an undervalued low-cost copper-gold producer, with significant exploration upside that we expect to generate significant free cash flow in 2019.
Highlights:
  • Record Q4, the result of a progressive ramp-up. The company produced 5.81 Mlbs Cu and 2.913 koz Au. Copper production was up 8% QoQ, and 9% YoY, while gold production was down 3% QoQ, and 2% YoY (Figure 1). The company’s continuous operating improvements have lead to a strengthened balance sheet allowing the for aggressively exploration of its very prospective land package in 2019 (Figure 2).
  • 2019 guidance points to the potential for another record year. With throughput steadily improving, the company finished 2018 strong. While corporate guidance suggests production is likely to be roughly flat in 2019 (20-21M lbs Cu, 10.-10.7koz Au) as compared to 2018 (21.9M lbs Cu, 11.3koz Au), we expect this historically conservative management team to at the very least hit the top end of guidance and likely beat.
  • 2019 guidance suggests the company is going to out perform its current valuation. Based on 2019 guidance, our preliminary estimates suggest the company should generate US$12-15M in EBITDA and US$4-5M in free cash flow at current copper prices. This is substantial when you consider the company’s current market cap (C$33.5M) and enterprise value (C$34.3M).
Valuation:
Atico currently trades at a steep discount to peers. Based on our preliminary estimates, Atico trades 1.7x-2.1x EBITDA or at an 12-15% FCF yield. When you consider that other base metal producers trade at 6.3x EBTIDA, Atico appears to be severely discounted. In addition, we believe this property has significant exploration upside and the company’s solid balance sheet (US$4.4M in cash and growing) has it well position to test the numerous targets that have developed over the years. Upcoming Catalysts include 1) Exploration update (Q1/19), 2) 2018 Financial results (April 2019) and 3) Q1 Operating results (Q2/19).

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