Steady Copper Production and Growth Potential Make Atalaya Mining an Attractive Investment

Atalaya Mining PLC (AIM:ATYM) is a copper producer operating in Spain with a track record of steady production growth and significant expansion potential. In this interview, CEO Alberto Lavandeira provides an overview of the business, an update on recent cost pressures, and insight into the company's growth strategy.

Several factors make Atalaya Mining an appealing investment opportunity:

• Stable low-cost production from the Proyecto Riotinto site with 54,000 tonnes guidance for 2023
• Funded growth projects can expand production up to 100,000 tonnes per year by 2027
• High margins at current copper prices of around $4/lb
• New leaching technology improves recoveries and unlocks additional reserves
• Large discount to NPV and proven ability to deliver on guidance

Cost Pressures Easing After Tough 2022

The European energy crisis caused a spike in Atalaya's operating costs in 2022, with electricity prices rising from €60 to over €500 per MWh at times. Combined with supply chain inflation, this pushed Atalaya's Q3 costs to $3.37/lb and Q4 to $3.12/lb.

However, the crisis was an exceptional event and energy prices are now falling back to more normal levels around €40-50/MWh in Spain. Lime, explosives, steel balls and other input costs are also decreasing from peak levels.

While some cost inflation will persist, Atalaya expects its all-in costs to trend lower through 2023. The crisis showed Atalaya's leverage to volatile European energy markets, but spot power prices do not impact long-term profitability.

Riotinto Copper Project Delivering Consistent Production

Atalaya Mining's only operating asset is the Proyecto Riotinto copper mine in southwestern Spain's Iberian Pyrite Belt. The open pit mine and processing plant have capacity for 15 million tonnes per year and produce copper concentrate sold to traders and smelters.

Riotinto has been in continuous operation since restarting the old Rio Tinto mine in 2016. The company has a strong track record of meeting or exceeding guidance, producing around 54,000 tonnes of copper each year.

Similar production is expected for 2023, with potential for 60,000 tonnes if higher grade ore is sequenced. Riotinto still has a 9-year mine life based only on proven and probable reserves of 177 million tonnes at 0.37% copper.

Funded Growth to Double Production by 2027

While Riotinto provides stable free cash flow, Atalaya's growth prospects are even more exciting for investors. The recent preliminary economic assessment (PEA) for the Proyecto Riotinto District outlined a low-risk expansion to produce 97,000-105,000 copper equivalent tonnes per year.

This would come from expanding the Riotinto pit, developing the San Dionisio and San Antonio underground deposits, and adding a flotation line to recover zinc by-product. Total capex of $197 million can be funded from existing cash flow over 4 years.

Atalaya Mining is also evaluating a new leaching process called IXTRAX that achieves ~20% higher recoveries by leaching polymetallic ore. This could unlock substantial additional value not accounted for in the PEA.

Exploring Nearby Properties Offers Further Upside

While Riotinto is the core asset, Atalaya Mining also has exploration properties in the region that provide optionality:

• Touro Project (100% interest): Past producing copper mine that could add 30,000 tpy. Environmental approvals are being updated.
• Masa Valverde (100% interest): Exploration target under evaluation via drilling.
• Cobre San Rafael (50% interest): Joint venture project in initial exploration.

Any discoveries or positive developments on these assets would be incremental to Atalaya's growth pipeline.

Strong Financial Position to Support Growth

Atalaya Mining maintains a solid financial position with €63 million in cash and €47 million of debt as of Q3 2022. Cash flows are highly positive at current copper prices.

The PEA outlined €1.6 billion in after-tax NPV (8% discount rate) for Riotinto's expansion, compared to the company's €550 million market cap. The low-risk growth is not priced in, presenting significant upside.

Trading at only 0.25-0.3x NPV shows the market is undervaluing Atalaya. More investors should recognize this opportunity as the company continues meeting guidance and advancing its growth projects.

Conclusion

Atalaya Mining offers a unique exposure to copper in a tier-one mining jurisdiction. The valuable in-situ reserves, fully built production infrastructure, and demonstrated operational expertise provide a clear path to low-risk expansion.

As energy cost headwinds ease in 2023, Atalaya's financial performance should strengthen. With high leverage to the copper price and material upside not reflected in the share price, Atalaya Mining makes for an attractive investment at current levels.

The Investment Thesis for Atalaya Mining

• Strong leverage to copper price - Atalaya Mining has high operating margins, with cash costs projected around $1.25/lb even after inflation. This provides great torque if copper prices remain near $4/lb or higher.
• Production growth funded from internal cash flows - The expansion projects to grow output can be financed from existing cash flow, limiting dilution for shareholders.
• Asset diversification in a top mining jurisdiction - Having assets in Spain provides diversification away from riskier developing countries. Spain is considered one of the best mining investment destinations.
• New technology improving efficiency - The introduction of the IXTRAX leaching process could boost copper and zinc recoveries by 15-20%. This provides production growth and higher profit margins.
• Exploration and discovery potential - Nearby early-stage exploration properties offer free upside options if resources are delineated.
• Proven management team - The operational track record and constant guidance outperformance inspire confidence in the team to deliver results.
• Undervalued based on conservative metrics - Trading at only 0.25-0.3x NPV highlights the disconnect between underlying value and market price.

Atalaya Mining offers a de-risked copper exposure trading at a steep discount to fair value. As the company hits key milestones and copper market tightness continues, the valuation disconnect should narrow for significant upside.