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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA
07.aug.18

Signum Perspectives

Compañía Minera Autlán, S.A.B. de C.V.

Autlán’s posted Q218 record high sales of US$101.1 million, with a growth of +12.6% y/y. Revenues were driven by a higher ferroalloy sales volume that was 12% above the Q217 level as well as higher prices across the product range.

Production increases and steel prices both in Mexico and globally, had a positive impact on manganese ore consumption and prices. According to Autlán, in Q218, international manganese prices rose by more than 50% y/y and high-carbon ferro-manganese and silico-manganese prices also rose q/q.

However, higher prices of inputs like electricity, manganese ore and coke resulted in sales- related costs jumping +20.3% to US$70.5 million. As a result, gross profit was US$30.7 million, -1.9% y/y, reflecting a -446 bp decrease in the gross margin.

Likewise, operating costs were up +4.9% y/y, which translated into a -5.1% y/y reduction in Operating Profit which reached US$20.2 million. EBITDA was US$25.9 million, -5.8% y/y, and the EBITDA margin decreased -500 bp to 25.6%. Management told us that this EBITDA margin is within the normal short-term range.

Net profit rose +129.0% y/y to US$25.14 million. This very strong increase was underpinned by a net financial gain of US$8.2 million derived from peso devaluation in Q218 compared with a financial loss of -US$8.6 million in Q217. The net margin was 24.9%, +1,263 bp above the Q217 level.

In Q218, Autlán issued P$300 million in short-term unsecured senior notes, which took the company’s Net Debt/EBITDA ratio to 0.74x (vs. 0.51x in Q218).

Conference call with CFO and investor relations team

Based on Q218 results, managed said the 2018 production goal is around 248k tons of ferroalloys, which is an increase of +7% on 2017. Accumulated ferroalloy production for the first half of the year was 123K tons, in line with that objective.

As Autlán’s revenues are in dollars and most of its debt amortizations are in pesos, the company has taken out exchange rate hedges that protect it from a possible appreciation of the peso. The hedges mostly take the form of European options that enable Autlán to hedge local currency liabilities.

Likewise, as most of the company’s debt is referenced to a variable interest rate, it has interest rate options to protect it from interbank overnight interest rate (TIIE) levels of more than 8.5%. The options expire on May 23, 2024 and were entered into at a notional value of $342.5 million pesos (around 50% of total debt). The average cost of Autlán’s debt is 10.34%.

Regarding the merger with Metallorum, a company engaged in precious metal mining, like Autlan, all of its revenues are in dollars. Autlán expects to produce around 60,000 ounces of gold this year, which will be financed organically, and its 2020 gold production objective is 85,000 ounces.

Finally, management confirmed that Metallorum’s results will likely be reflected in the financial statements accompanying Autlán’s next quarterly report. The merger will result in 78.5 million new shares, taking the total number of outstanding shares to 350.4 million.

Final remarks

Assuming Autlán meets its ferroalloy production guidance, we expect the company’s third quarter report to also reflect strong volume growth and strong revenue growth rates in the second half of the year as a result of the consolidation of Metallorum in Autlán’s quarterly results.

In our view Autlán posted average results driven by more robust sales volumes, but impacted by higher input prices. However, given the merger with Metallorum, our expectations about Autlán’s short-term performance are high. We therefore maintain our OUTPERFORM rating with a year-end target price of P$23.50 per share.



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