Friday, April 29, 2022

Atalaya Copper

Atalaya is a small, copper miner, producing from a single mature mine in Spain.  Its listed on AIM/TSE.  Mkt cap is around 700m Euros.  I was attracted by the dividends.


They have been producing from their Cerro Colorado pit in the RioTinto mine near Seville (south Spain) since 2016.  From their 2022 production guidance (15.5Mt/year) and Proven Reserves on their website (128Mt @ 0.41% cutoff), the mine has 8 years life remaining.  Their June 2021 reserve estimate gives proven reserves of 139Mt @ 0.38% Cu, estimating a 12 year lifespan (ie: 11 years from now).  So this mine's lifespan is somewhere between 8 and 11 years.

They have new mine (Touro) in the north of Spain undergoing permitting. This has half the reserves and roughly half the potential production of Cerro Colorado:

And like any mining company, they have a number exploration projects ongoing.  Most are surrounding RioTinto:


The finances look simple and clean.  Normal looking income statement: 

They were profitable in 2020.

Low debt, net cash position.

They declared their first dividend late last year, and plan to payout 30-50% of free cashflows this year onwards.  The (annualised) yield based on that is 8.6% (at a share price of 4.50 GBP).  And that was 45% of earnings.  Can't extrapolate that into the future since it all depends on the copper price.


They are producing from a single mine.  Anything that goes wrong there affects their entire production.

Cerro Colorado only has an 8-11 year lifespan.  Production should start soon at Touro, but this is only half the size.  They need more projects to work out, just to replace Cerro Colorado.

Not much Geopolitical risk.  I like to own copper production away from Chile and Argentina, who are raising resource taxes.

I think Spain's gonna have a currency crisis and leave the EU, but that doesn't affect mining.  And I think Spain is not as safe a jurisdiction as Canada or Australia, but its better than Latin America or Indonesia.  With mining you can't be choosy.


Spain has a 19% withholding tax.  Should be 5% for Singapore residents (p7), but I'll need to see what Interactive Brokers charges.

I got this idea from an 2021 interview (paid link) on CruxInvestor.  He starts talking about Atalaya's projects at 22:00.  Dividends and acquisitions/mergers at 27:00.  Expansion at 39:40.


Production is from a single mature, low grade mine.  Sustainable for 8-11 years.  They are profitable by running it efficiently.

Their long term future depends on bringing on production from the areas surrounding Cerro Colorado.  This ends up being a binary event - either one of them works or it doesn't.  There is a lot of luck in mining.  The most likely place to find new reserves is next to an existing mine.

Saturday, April 23, 2022

Quick notes on Woodside Energy (ASX:WPL)

Largest Australian LNG producer, with long-life conventional projects.

Its a well-covered blue chip, so no point over analysing it.  I just want to get a feel for their risks and numbers.

GeoPolitical Risk

Very low.  All 2021 production and 94% of their 2P reserves were from offshore Australia.  So its is safe from any wars/revolutions in Russia, Asia or the Middle East.  About half their 2C gas reserves are in Canada, and they have some development in Senegal.

Some China risk.  30-40% of Australia's LNG exports go to China.  Probably the same proportion for Woodside's.  If China attacked Taiwan, these would need to find a new market.  That event would probably tank the LNG market.

Some ESG risk: In 2021 19% of Woodside shareholders vote to "manage down" oil and gas production.  Australia is pretty woke.


After dropping for the past 7 years, 1P and 2P reserves doubled in 2021, the increase being transferred from their 2C reserves (p56), almost all of it to due to first time reserves classification of the Scarborough development (West Australia) (p145) (p26).

Taken at face value, they have 12 years of 1P gas reserves remaining.

Balance Sheet

Net debt is low at 3.7bn.  Less than 1X 2021 EBIDTA (a good year).  Or 2X 2020 EBIDTA (a bad year).

Historical Cashflows

They paid high dividends, even in 2020's downturn.  I'm a bit uncomfortable with this.  I did the numbers below to get a feel for their last past 10 years' cashflow generation, capex and dividends.

CashFlows from Ops are usually greater than Cash(out)flows For Investment.  The yellow line is usually positive:

Dividends are high, based on 50-80% of NPAT.  No relationship between cashflows generated and dividends paid out:

Over the period, the average annual cashflow generated (CFO-CFI) was 1.2bn  The average dividend paid out was 1.1bn.  So they paid almost all cash generated as dividends!

These dividends are a little high and could be better used for growth.  But they are probably sustainable - its not a ponzi.  I just dislike cyclical companies that pretend to be something they aren't.

The latest 2021 dividend of USD 1.35 is 80% of NPAT.

BHP Merger

The proposed merger with BHP Petroleum, if done in Dec 2021 (pro forma), would have:
  • Almost doubled the number of issued shares (up 95%)
  • Not increased debt, but added a 4.1 billion provisions (restoration, I think)
  • Increase 1P reserves by 62% (in MMboe - however BHP's reserves are 'oiler', at around 30% oil) (p235)
  • Changed production profile to be 'oilier': up to 30% oil.  Also change production profile from 100% Australian to 15% GOM and 5% Trinidad and Tobago (near Venezuela) (p238)
  • Increased CFO from 3792m to 6314m (up 86%).
  • Increased CFI from 2941 to 4042 (up 37%)
2/3rds of BHP's assets are in GOM.  These have a 20-30 year expected life.  Their Australian assets have a 10 year lifespan (p151):

They expect 400m pre-tax savings annually (p226) in 'synergies' which are not part of the pro-forma numbers above.

From the numbers, I'm guessing the merger maaaaayyy be OK for Woodside shareholders.  If they get their 'synergies'.  They are both Australian companies, so no culture shock.  BHP is a motivated (maybe irrational) seller.

Capex and Production Growth

For Woodside, the term capex means "Cashflow from Investment".

I couldn't find much.  Best I found was 2019 (pre-covid) slides expecting a 2021 peak in capex of 4-5bn (slide 39):

With ramp ups in production volume till 2024-2026 (slide 9):

Actual 2021 CFI was 2.9bn.  Looks like a lot of investment has been pushed back and is still to come.

Presentations and transcripts in 2020 and 2021 don't give long term capex targets, they only give them for the following year.  2022's capex is expected to balloon to 4bn (excluding BHP's assets) (p24).


Blue chip company paying almost all its cashflows as dividends.  I think it will diversify my energy stocks, adding production from a low risk part of the world.

I'll add this to my watchlist.  Not buying it now cause I think the market's going off a cliff in the next 3 months.  And there's a chance that woke BHP shareholders dump their unholy fossil fuel shares once the merger goes through on June 1st.


Australian WHT on dividends to Singapore residents is 15%.

The main business problem the company has is a rising AUD and costs, if the commodities boom continues.