It seems that since the start of the year, AT shares have mostly traded under P18 a piece. This went on until the end of trading in March when it closed at P17.94. But on the first trading day of this month on April 2, the price of AT shares settled higher at P18.50. This price advance was sustained through more transaction volume in the following days that on April 13, the price of AT again closed higher at P18.92, up 5.46 percent from its price of P17.94 on March 30.
Ordinarily, this rate of increase in the price of AT in the last two weeks may not be that exciting because this could just be a part of the market momentum resulting from the investment inflows of foreign investors early this year. This is supported by the final tally of foreign direct investments (FDIs) for January by the Bangko Sentral ng Pilipinas, wherein on Thursday last week it said that the country’s FDIs had grown to about 2.57 times over and above the equity inflows of the same period last year.
These investment inflows originated mainly from the United States, Australia, Kuwait and Canada. The bulk was invested in the manufacturing sector, wholesale and retail trade, financial and insurance activities, real estate and—of course—mining. A few others also claimed that it was a part of the improving investors’ outlook growing out from unfolding positive news reported last week relative to the state of the US economy, Europe and, specially, China.
Looking more closely, though, something more profound is seemingly powering the current market play in AT. Most mining issues are still trading low and slow. If at all, their market plays are not as strong as the one unfolding in AT. The market also remains soft, in general.
Developments
Last March 9 (via Carmen Copper Corp., or “CCC”) AT was able to successfully raise $300 million through a bond offering—another game changer for AT. The bond issue, as published, will be partly used to repay the full outstanding balance of its indebtedness “under the BDO Unibank loan” amounting to $114 million. The rest will be used to finally address the expansion of the daily production capacity of CCC from 40,000 tons to 60,000 tons next year and 100,000 tons thereafter, all to happen in the next two or three years.
It is significant to remember that with the financial arrangements made last year, AT was able to not only take 100-percent control of CCC—which effectively increased AT’s net earnings from (P0.71) a piece in 2010 to P1.17 a share in 2011—but also to efficiently use the remaining balance of $22 million for CCC’s general working capital requirement.
Due to this, AT had the following performance result for the first quarter as disclosed last April 11: AT (through CCC) “produced a record 7.35 million pounds of payable copper in March 2012, capping a strong first quarter, which saw CCC increase its copper output by 21 percent based on production rates during the same period in 2011. This surge in productivity enabled CCC to complete three shipments of copper concentrate to Chinese smelters within one calendar month, and to earn a monthly revenue exceeding $30 million for the first time since the start of commercial operations in 2008.”
As of last Friday, the market capitalization of AT amounted to P34.04 billion with the following basic financial statistics: it has a free float of 41 percent; 1,100,313,196 listed shares; outstanding shares of 1,799,053,032; and an earnings estimate of P1.70 a share for 2011.
Based on the production capacity reported for the period ending March or the first quarter—wherein the rated capacity of CCC for the period still stood a little more than 40,000 tons a day—quarterly EPS computes to about P0.73 a share. On an annual basis, this amounts to P2.92, up 71.76 percent from estimated 2011 EPS. At the closing price of P18.92 last Friday, this will amount to a price earnings multiple (P/E) of 6.48 times only.
Should AT be able to increase its rated daily production capacity by 50 percent more or to 60,000 tons a day—where the acquisition of the necessary equipment and working capital is no longer a problem with its new funding—AT’s net earnings may amount to P5.02 a share by the end of 2013. At the market’s average P/E multiple of eight times, the price of AT should amount to P40.16 apiece, a price that will certainly makes the price of AT last Friday of P18.92 a share a big bargain.
Bottom-line spin
Of course, these valuations for AT will largely depend on the ability of management in making things happen. For this matter, AT’s executive vice president, Adrian S. Ramos, was quick to point out that their management track record will speak for itself. The future of the company is equally assured by the productivity of its Toledo copper mine in Cebu province (CCC’s mine site). Accordingly, it has “proven mineral reserves of 460 million tons, equivalent to 16 years of production at projected capacity.” Just with it, AT could become a leading diversified mining conglomerate in the Philippines.
What is “disturbing,” according to Ramos, is the government’s delay in issuing the new policy that will govern the future of commercial exploration and exploitation of mineral resources in the country. This lack of grasp for swift action by government is “creating apprehensiveness” in the mining sector, Ramos added.
(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at marketrider@inquirer.com.ph, densomera@msn.com or at www.kapitaltek.com.)