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Atlas Mining (AT PM) Summary

Core Content

Atlas Consolidated Mining and Development Corp (AT) is a diversified natural resource-based company in the Philippines, primarily engaged in metallic mining and mineral exploration. It is a leading copper producer in the country and has significant assets in nickel, water supply, and mineral exploration.

Key Information

• Share Price: PHP14.90
• Market Cap (USD): 686M
• Target Price (PHP): 22.06 (+48% upside)
• ADTV (USD): 0.2M
• Sector: Metals & Mining
• Investment Recommendation: BUY

Main Operations

• Copper Production: AT is the top copper producer in the Philippines, with annual capacity of 145m lbs of copper concentrates by 1Q14. The Toledo copper complex, operated by Carmen Copper Corp (CCC), is a major asset.
• Nickel Production: Berong Nickel Corp is a 25% owned project in Palawan, with potential for value-added nickel products.
• Water Supply: AquAtlas Inc operates the Malubog dam, capable of supplying 100,000 cubic meters per day, with potential for bulk water supply to Cebu City.
• Mineral Exploration: Atlas Exploration Inc is focused on exploring additional mineral rights and potential deposits in Cebu and Surigao del Sur.

Financial Highlights

• 2012 Net Revenues: PHP14.5B (up 203% YoY)
• 2012 Net Income: PHP3.3B (up 167% YoY)
• 2013 9M Net Income: PHP1.63B (with an unrealised forex loss of PHP699M)
• 2014 EPS Forecast: PHP2.43 (up ~700% YoY)
• Dividend Yield: Expected to rise to 13.3% in 2014, higher than fixed-income yields.

Strategic Directions

• Cost Reduction: AT is focusing on cost-cutting measures, including shifting production to higher-grade Carmen mine, improving productivity, and securing lower power costs through Toledo Power Corp (TPC).
• Capacity Expansion: The company is expanding milling capacity to 60ktpd by 1Q14, which is expected to significantly boost earnings.
• Value-Added Operations: Berong Nickel is exploring the use of HPAL technology to produce value-added nickel products.
• Exploration: AT is evaluating potential extensions of existing deposits and exploring new properties such as Maypay and Diwata.

Valuation and Outlook

• DCF-Based Valuation: Based on reserves and long-term prices, the target price for AT is PHP22.06.
• Potential Upside from Berong Nickel: Valuation of Berong Nickel could add PHP7.85 per share, bringing total value to PHP29.91.
• Earnings Outlook: 2014 is expected to see a surge in net income to PHP5.15B, with EPS close to PHP2.43.
• Dividend Strategy: With no major capex planned after 2014, AT is set to pay higher dividends, making it a dividend play.

Key Projects

• Toledo Copper Complex: Has JORC proved and probable reserves of almost 460m tonnes with an average grade of 0.34% copper.
• Berong Nickel Project: Contains over 250m tonnes of nickel laterite, suitable for HPAL processing.
• Water Supply: Malubog dam provides water for Cebu City, with potential to generate significant revenue.

Peer Comparison

• Valuation Multiples: AT is currently trading at 5.5x in 2014F-2016F, significantly lower than the peer average of 11x12x.
• Market Position: AT is a pure-play copper company in the Philippines, with no major competitors expected to come online until 2017.

Summary of Key Points

• Copper Production: AT is the largest copper producer in the Philippines with significant reserves and planned expansion.
• Nickel Diversification: Berong Nickel offers diversification potential with substantial nickel resources.
• Cost Efficiency: Power cost reductions and operational improvements are expected to enhance profitability.
• Dividend Potential: High dividend yield and potential for increased payouts post-2014.
• Valuation: Target price based on DCF model, with upside potential from under-exploited assets and by-products.