Atalaya Mining - Copper Producer Develops Solar Energy Solution

• Atalaya Mining faced challenges in Q2 due to the surge in energy prices, which currently account for nearly 30% of their total costs, up from the usual 10-11%.
• To counteract these rising costs, Atalaya Mining has constructed a solar plant and signed a power purchase agreement for a decade, securing energy at a rate nearly five times lower than current market prices.
• Atalaya Mining's CEO, Alberto Lavandera, emphasizes the need for a quicker transition to sustainable energy sources, like wind and solar, in Spain and across Europe to stabilize energy prices.
• Despite current challenges, Atalaya remains positive about the medium-term outlook, leveraging its strong balance sheet and the increasing global demand for copper, especially with the rise of electric vehicles and renewable energy sources.
• Lavandera also highlighted the importance of exploration to extend the company's life and ensure profitability in the long run, while expressing concerns about the current undervaluation of their assets in the market.

Atalaya Mining Well-Positioned to Weather Current Cost Pressures

Spanish copper miner Atalaya Mining plc (ATYM.L) remains positive on the long-term outlook for copper prices despite short-term cost pressures from high energy prices, CEO Alberto Lavandeira said in an August 2022 interview. Lavandeira outlined the company's strategies to reduce its energy costs and continue exploration to extend mine life, positioning Atalaya Mining to benefit from an eventual copper price recovery. With the stock trading at a low valuation compared to invested capital, Atalaya offers investors leverage to future copper price strength.

Surging Energy Costs Hit Profits

Atalaya’s profits fell in the first half of 2022 as the company faced a spike in electricity costs at its Riotinto copper mine in Spain. Electricity prices in Spain have risen around fourfold, driving up Atalaya’s energy costs from 10-11% of total costs to close to 30%. However, Lavandeira stressed this is a temporary issue, with high energy costs only affecting the company for the past six months within its 15-year mine life.

Solar Plant to Cut Electricity Costs

Atalaya Mining invested in a solar plant at Riotinto three years ago that will help buffer it from volatile electricity prices. The 50MW solar plant will cover over 50% of the mine’s electricity needs at around five times lower cost than the current elevated market prices. Atalaya has also signed a 10-year power purchase agreement with an energy supplier at a rate much lower than spot prices. Together, these measures will reduce Atalaya’s electricity costs from around 30% currently to 15% of total costs.

Exploration Continues to Extend Mine Life

Atalaya continues to invest in exploration around Riotinto to add higher grade resources and extend the mine’s life beyond its current estimate of 15 years. The company is progressing permitting to develop additional deposits close to Riotinto such as San Dionisio and San Antonio that can utilize existing infrastructure. CEO Lavandeira stressed the need to continue exploration to provide “optionality” for investors through exposure to future copper price cycles over an extended mine lifespan.

Long-Term Copper Fundamentals Remain Strong

higher-gradeDespite recent weakness, Lavandeira remains bullish on the long-term outlook for copper prices given decarbonization trends globally. He believes the current energy crisis will slow new mine investments, supporting prices as demand growth continues. In addition, Lavandeira argued the inflationary environment will make it difficult for mining companies to obtain financing for new projects. With copper inventories at low levels, he sees upside risk to prices from potential supply disruptions. All of these factors point to a tighter copper market over the next 5-10 years that should support prices.

Atalaya Mining Offers Leveraged Exposure to Copper

Given its low valuation compared to invested capital, Atalaya Mining offers investors leveraged exposure to a potential copper price recovery. The company is currently trading at around £400m compared to £500m invested in its Riotinto mine. With a strong balance sheet and low-cost solar power, Atalaya appears well-positioned to ride out short-term cost pressures and benefit from long-term copper demand growth. The company’s exploration efforts should also extend Riotinto’s mine life, providing ongoing exposure to future copper price cycles. For investors bullish on copper’s role in the global energy transition, Atalaya Mining warrants consideration.

The Investment Thesis for Atalaya Mining

• Leverage to copper price recovery - Atalaya Mining offers leveraged exposure to a potential rebound in copper prices given its low valuation compared to capital invested in its flagship Riotinto mine. As copper demand grows amid decarbonization efforts while new supply slows, Atalaya Mining should benefit disproportionately from higher prices.
• Cost reduction strategies - The company has actively managed its energy cost exposure through long-term power agreements and its solar plant. This will help insulate Atalaya from prolonged elevated energy prices.
• Strong balance sheet - With low debt levels and solid cash reserves, Atalaya Mining has the financial strength to continue investing in growth while weathering any near-term operational challenges. This reduces risk compared to over-levered miners.
• Exploration upside - Atalaya Mining is progressing with exploration around Riotinto that could substantially increase resources, extend mine life, and improve operating margins through higher-grade ore. Additional discovery potential provides upside.
• Takeover potential - If copper prices enter a sustained bull market, Atalaya's low valuation and extensive reserves could make it an attractive M&A target for a major mining company looking to increase copper exposure.
• Experienced management - The company is led by a veteran mining executive with deep experience navigating commodity cycles. This provides credibility in executing strategies and upside potential.
• Existing infrastructure - Atalaya Mining benefits from having its Riotinto mine already in production rather than facing risks during mine development. This makes cost overruns less likely.

Atalaya Mining offers investors relatively low-risk exposure to copper upside, both operationally and in the commodity price environment. For investors positive on copper's role in the energy transition, Atalaya warrants strong consideration.