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Stocks to watchGold is up again
Watch the secular market Mining
Coeur Mining is the largest U.S.-based primary silver
producer and a significant gold producer
HudBay Minerals Inc.
M&A CONSULTING
ENGEL
M&A CONSULTING
ENGEL
M&A CONSULTING
ENGEL
M&A CONSULTING
ENGEL
3
Coeur Mining
Coeur has been a star performer YTD.
Coeur has slashed costs and refocused its operations on the higher grade portions of its Palmarejo and
Kensington mines. The company expects to access these higher margin ore sources by late 2016 and
this should deliver better margins, for as long as this ore lasts. Progress with this initiative and deep
cuts to costs seem to have encouraged investors and led to stocks outperformance.
M&A CONSULTING
ENGEL
Coeur Mining is the largest U.S.-based primary silver producer and a significant gold producer with five precious
metals mines in the Americas. Coeur produces from its wholly-owned operations: the Palmarejo silver-gold mine in Mexico,
the San Bartolome silver mine in Bolivia, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska,
and the Wharf gold mine in South Dakota.
The company also has a non-operating interest in the Endeavor mine in Australia, and royalties on the Cerro Bayo mine in
Chile, the El Gallo complex in Mexico, the Zaruma mine in Ecuador, and the Correnso mine in New Zealand. In addition,
the Company has two silver-gold feasibility stage projects - the La Preciosa project in Mexico and the Joaquin project in
Argentina.
5
Coeur Mining
Coeur Mining Inc. (CDE.N)
11.26USD; 1 July 2016
Coeur has been a star performer YTD. Coeur has slashed costs and refocused its operations on the higher grade portions of its Palmarejo and
Kensington mines. The company expects to access these higher margin ore sources by late 2016 and this should deliver better margins, for as
long as this ore lasts. Progress with this initiative and deep cuts to costs seem to have encouraged investors and led to stocks outperformance.
M&A CONSULTING
ENGEL
6
Coeur Mining - Interim Income Statement
Coeur Mining Inc
Interim Income Statement
[Standardized in USD Millions]
31-Mar-2016 31-Dec-2015 30-Sep-2015 30-Jun-2015 31-Mar-2015
Period Length 3 Months 3 Months 3 Months 3 Months 3 Months
Total Revenue 148,4 164,3 162,6 166,3 153
Cost of Revenue 101,6 125,3 120,2 119,1 115,1
Gross Profit 46,8 39,1 42,3 47,2 37,9
Exploration, Development and Mineral Property Lease 1,7 1,7 2,1 3,6 4,3
General and Administrative Expense 8,3 8,9 6,7 8,5 8,8
Selling, General and Administrative Expenses 8,3 8,9 6,7 8,5 8,8
Development Expense 4,2 - 4,9 2,3 6,8
Research and Development 4,2 - 4,9 2,3 6,8
Depreciation, Amortization and Depletion 28 36,2 35,5 39 33,1
Write-Down 4,4 - - - -
Special Income Charges 4,4 - - - -
Total Operating Expense 46,6 363,9 49,2 53,3 53
Total Expenses 148,2 489,2 169,5 172,4 168
Operating Income 0,2 -324,8 -6,9 -6,1 -15,1
Interest Expense - Non-Operating 9,8 11,8 12,4 13,6 8,4
Net Non-Operating Interest Income (Expense) -9,8 -11,8 -12,4 -13,6 -8,4
Income Before Tax -18,3 -320,8 -22,5 -16,9 -33,2
Total Income Tax 2,1 -17,8 -8,3 -0,3 0,1
Income After Tax -20,4 -303 -14,2 -16,7 -33,3
Net Income -20,4 -303 -14,2 -16,7 -33,3
EBITDA 19,5 -272,9 25,5 39,1 8,3
M&A CONSULTING
ENGEL
Coeur Mining owns : a Diversified Geographical Presence
Geographically diverse operations helps Coeur mitigate the various risks associated with an over dependence on a
particular market. The company is a silver and gold mining company. It owns operational properties in Mexico, the US and
Bolivia. It also owns development projects; and streaming and royalty interests in Mexico, Australia, New Zealand Chile
and Ecuador. Geographically, the company classifies its operations into five regions: the US, Mexico, Bolivia, Australia and
Others. In FY 2015, these regions accounted for 58%, 27.%, 13 %, 1.4 % and 0.6% of the company’s total revenue
respectively. A wide geographical presence enables the company to enhance its brand equity, and provides new growth
opportunities.
Coeur Mining owns : Huge Reserves
Strong reserves help the company to cater the increasing demand in the market. As of December 2015, the company’s
San Bartolome mine has proven and probable reserves of 27.9 ounces of silver at the mine. Its Palmarejo silver and gold
mine has total proven and probable reserves of 9.09Mt, with 44.9 Moz of silver at 4.94 oz./ton of silver grade. . In addition,
the Rochester Mine has total proven and probable reserves of 150.6 Mt with 79.3 ounces of silver at 0.53 oz./ton of silver
grade and 0.003 oz./ton of gold grade. Kensington mine has total proven and probable reserves of 26.7 Mt with 560,301
ounces of gold at 0.198 oz./ton of gold grade. Therefore, the company’s reserves and resources enhance its business
operations and generate higher revenues.
Coeur Mining owns : Strong Asset Base
Strong asset base enables the company to enhance its business growth objectives. The company involves in the
production and exploration of silver and gold mining assets. Coeur owns and operates San Bartolome mine; Palmarejo
mine; Rochester mine; Wharf mine; and the Kensington Gold Mine. Coeur also owns streaming and royalty interests in
Endeavor mine which produces silver, lead and zinc; El Gallo complex; Zaruma gold mine; Cerro Bayo silver-gold mine;
Correnso gold mine; and other non-producing properties. The company also owns development projects including Joaquin
in Argentina and La Preciosa in Mexico. In Fy2015, the company produced 15.9 million ounces (Moz) of silver and 327,908
ounces of gold. Therefore, strong asset base helps the company in attracting larger customer base, while improving the
top-line performance.
7
Coeur Mining
M&A CONSULTING
ENGEL
HudBay Minerals Inc. is a Canada-based mining company. The Company is engaged in the production of copper
concentrate, consisting of copper, gold and silver, as well as zinc metal. The Company is focused on the discovery,
production and marketing of base and precious metals. The Company has assets in North and South America. Through its
subsidiaries, the Company owns approximately four polymetallic mines, four ore concentrators and a zinc production
facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and a copper project in Arizona (the United
States). The Company owns Constancia mine, an open pit copper mine in Peru. It owns 777 mine, an underground copper,
zinc, gold and silver mine in Flin Flon, Manitoba. It owns Lalor mine, an underground zinc, copper and gold mine near
Snow Lake, Manitoba. It also owns Rosemont project, a copper development project in Pima County, Arizona, in the United
States.
9
HudBay Minerals Inc.
HBM.TO on Toronto Stock Exchange
6.64 CAD; 4th of July 2016
M&A CONSULTING
ENGEL
10
HudBay Minerals Inc. - Interim Income Statement
HudBay Minerals Inc
Interim Income Statement
[Standardized in USD Millions]
31-Mar-2016 31-Dec-2015 30-Sep-2015 30-Jun-2015 31-Mar-2015
Period Length 3 Months 3 Months 3 Months 3 Months 3 Months
Total Revenue 253,6 336,6 269,8 149,7 128,7
Cost of Revenue 225,7 277,8 227,8 145,5 115,7
Gross Profit 27,9 58,8 42 4,2 13
Exploration, Development and Mineral Property Lease 1,2 2,5 2,5 2,1 2,3
Selling, General and Administrative Expenses 8,3 7,6 3,1 10,1 9,5
Total Operating Expense 13,8 354,7 42,3 33,9 15,3
Total Expenses 239,5 632,9 270,1 179,4 131,1
Operating Income 14,2 -295,9 -0,3 -29,8 -2,3
Income Before Tax -16,9 -325,6 -16,1 -46 -11,5
Total Income Tax -1,1 -70,1 -4,3 -1,5 8,4
Income After Tax -15,8 -255,5 -11,8 -44,5 -19,8
Net Income -15,8 -255,5 -11,8 -44,5 -19,8
Net Income Available to Common Stockholders -15,8 -255,5 -11,8 -44,5 -19,8
EBITDA 80,6 -206,3 74,7 -1,9 14,3
M&A CONSULTING
ENGEL
HudBay is a mining company, involved in the exploration and production of copper, zinc, gold and silver. The
company’s strong asset base and reserves and resources are its key strengths, even as limited liquidity position
remains an area of concern. Going forward, operational risks, stringent Canadian regulations and shortage of
skilled labor in Canada may impact the company’s performance. However, increasing demand for silver and gold
and strategic growth initiatives may provide new growth opportunities for the company.
Strong Asset Base
HudBay asset portfolio enables the company to increase its revenues. The company owns 100% interest in two material
mineral projects in Canada including 777 mine, an underground mine in Flin Flon, Manitoba and Lalor project, located near
Snow Lake, Manitoba. In addition, it owns a 70% interest in the Reed mine located near Snow Lake, Manitoba. The
company owns 100% interest in Constancia project in Peru. In addition, the company also includes other exploration
properties such as Tom and Jason project and Grassroots projects. HudBay also holds minority equity interest several
junior exploration companies, as part of its strategy to occupy a pipeline of projects with the potential for development. The
company’s early stage opportunity pipeline projects are located in Canada, the US, Chile, Peru and Colombia. Such strong
asset portfolio enables the company to expand its production.
Strong Reserves and Resources
Strong reserves and resources help the company to cater the increasing demand in the market. As of January, 2016, the
mine had total proven and probable mineral reserves of 6.3 million tonnes, at 1.8% Cu grade, 4.9% of Zn grade, 1.8 g/t
(Au) grade and 26.7 g/t silver (Ag) grade. Lalor project had total proven and probable mineral reserves of 15.3 million
tonnes, at 0.7% of Cu, 5.7% of Zn grade, 2.54 of Au (g/t) and grade of 25.2 Ag (g/t). Reed mine had total mineral reserves
of 1.2 million tonnes, at 4.1% of copper grade, 0.4% of Zn, 0.4 g/t of Au and 5.3 g/t of Ag. Constancia project the project
had total mineral reserves of 614 million tonnes at 0.3% of Cu, 93% of Mo(g/t), 0.05% of Au (g/t) and 2.3% of Ag (g/t).
Therefore, the company’s reserves and resources enhance its business operations and generate higher revenues.
11
HudBay – Strategic Overview
M&A CONSULTING
ENGEL
Limited Liquidity Position
HudBay's current ratio was 1.2 in FY2015. This was lower than its close competitors, Centerra Gold Inc. and Eldorado
Gold Corporation, with respective current ratios of 5.7 and 4.2. This suggests that the company is less able to meet its
short-term obligations than some of its peers. At the end of the review year, the company had total current assets worth
US$435.2 million, a decrease of 5.6%. Its total current liabilities stood at US$377.6 million, an increase of 1% over the
previous year. Its current portfolio of long-term debt or capital leases also increased from US$20.1 million in FY2014 to
US$75.6 million in FY2015. The company’s and liquidity position puts it at a disadvantage when funding any potential
opportunities in the market.
Strategic Growth Initiatives
HudBay supports growth across diversified portfolio through acquisition and integration of firms apart from organic growth.
In October 2015, the company and Northern Zinc, LLC signed a purchase agreement with Star Mountain Resources, Inc.,
whereby Star Mountain announced to acquire Balmat Holding Corporation. In June 2015, the company signed a three year
collective agreements with the members of United Steelworkers Local 7106 and USW Local 9338. Such strategic
acquisitions are likely to strengthen the company's position in the market, in turn increasing its revenues.
Increase in Demand for Copper
Increasing global demand for Copper may lead to a potential increase in demand for company’s products. According to in-
house sources, global demand for copper is expected to be fueled by countries such as China, India, Japan, Germany and
the US. China is currently the largest consumer of refined copper accounting for 40% of world consumption. Its
consumption is expected to increase from 8.5 Mt in 2015 to 10 Mt in 2020. Germany’s copper consumption is expected to
increase from 1.7 Mt in 2015 to 2.2 Mt in 2020. Copper consumption in Japan is expected to increase from 1.2 Mt in 2015
to 1.3 Mt in 2020. India’s copper imports are expected to increase from 4.2 Mt in 2015 to 5.2 Mt in 2020. Therefore,
HudBay mining may benefit from this growing demand by gaining new projects or increased business activities and
enhance its revenues.
12
HudBay – Strategic Overview
M&A CONSULTING
ENGEL
Increasing Demand for Gold
Increasing global demand for gold may lead to a potential increase in demand for company’s products. According to in-
house research, global demand for gold is expected to be fueled by countries such as China, India and the US. China is
the largest consumer of gold and its gold consumption is expected to increase from 47.8 million ounces in 2015 to 61.5
million ounces in 2020. India’s gold consumption is expected to increase from 40.6 million ounces in 2015 to 54.6 million
ounces in 2020. In the medium term, the rise in demand for refined gold from Asian countries is mainly expected from its
jewelry sector, with factors such as wealthy citizens and a supportive government playing major roles. HudBay is involved
in the exploration and mining of gold and hence may benefit from this growing demand by gaining new projects or
increased business activities and enhance its revenues.
Rising Demand for Silver
Increasing global demand for silver may lead to a potential increase in demand for mining activities offering significant
growth opportunities for the company. According to the Silver Institute, Silver industrial demand which is the major
component of total silver offtake is expected to expand its share of total demand in 2016. In addition, in 2015, the industrial
fabrication demand accounted for 54% of total physical silver demand. Moreover Silver’s use in photovoltaic’s for solar
energy is expected to increase in 2016 and exceed the 75.8 Moz (million ounces) which was set in 2011, due to increase in
solar panel installations globally. Silver’s use in this application is expected to account for over 13% of total silver industrial
demand in 2016. The demand for silver from producers of ethylene oxide (EO) is anticipated to increase by 25% to more
than 10 Moz in 2016 annually. This demand is expected to appear from establishment of new EO plants and expansions
primarily in China, which is expected to account for 80% of silver supplies for new EO capacity in 2016. Jewelry fabrication
is also expected to grow by 5% in 2016; and coin demand which accounted for 12% of the total physical demand of silver
with 130 Moz is also expected to increase in 2016. HudBay can consider diversifying its portfolio to cater to the rising
demand for silver, and increase its revenue.
13
HudBay – Strategic Overview
M&A CONSULTING
ENGEL
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Disclaimer
The study is not intended as an offer to sell, or to solicit an offer to buy or form any basis of
investment decision for any class of securities of the company in any jurisdiction. All such
information should not be used or relied on without professional advice. The study is a brief
summary in nature and do not purport to be a complete description of the Company, its
business, its current or historical operating results or its future prospects.
This study contains forward-looking statements that involve risks and uncertainties. All
statements other than statements of historical facts are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that may cause
that actual results, performance or achievements to be materially different from those
expressed or implied by the forward-looking statements.
This study is provided without any warranty or representation of any kind, either expressed or
implied.