The general evaluation of MMG (HK), a company active in the General Mining industry, has been upgraded by the independent financial analyst theScreener with the addition of a star. Its fundamental valuation now shows 4 out of 4 possible stars while its market behaviour can be considered as moderately risky. theScreener believes that the additional star(s) merits the upgrade of its general evaluation to Slightly Positive. As of the analysis date March 8, 2022, the closing price was HKD 3.05 and i...
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In this note we focus on the Kinsevere copper mine, in the Democratic Republic of the Congo (DRC), wholly owned by MMG. Driven by power and production-related initiatives, copper cathode production has vastly exceeded the 60ktpa nameplate with c 70kt and 80kt achieved in 2014 and 2015 respectively. Last reported C1 cost was US$1.48/lb. We also update our group forecasts following recent results.
MMG reported positive Q315 production results, with total copper and zinc output rising 8% and 6% year-on-year. Despite the recent social unrest near Las Bambas, we currently view the risk of the project being affected as very low. MMG’s strong operational performance warrants a moderate valuation upgrade to HK$3.1/share. In our view, the stock continues to represent an attractive investment opportunity.
EBITDA rising 3% y-o-y to US$376m, against a 7% drop in revenue. In addition to the cost-cutting initiatives, the depreciation of the Australian dollar has helped the company to keep costs in check and supported profitability as EBITDA margin reached 34%. That said, the downward pressure on the commodity prices has led us to revise down MMG’s FY15/16 earnings estimates and valuation.
MMG has reported strong Q215 production results with copper and zinc output rising 12% and 16% year-on-year. Despite the share price pressures, against the backdrop of weaker commodity prices, Las Bambas commissioning and ramp-up remain an important share price catalyst.
Having incorporated Q115 production results, slightly updated commodity price assumptions and the impact from additional ore processing at Century, we increase our valuation of MMG to HK$3.35/share. Despite the limited near-term upside risks to copper, we believe that investors should focus on the execution of the Las Bambas project, which could further drive the re-rating of the stock. MMG continues to trade at an attractive 2017e EV/EBITDA of 3.7x.
MMG reported positive FY14 financial results, with EBITDA rising 4.0% against the backdrop of mixed commodity price performance. While 2015 will be a transitional year for the company, the key investor focus should remain on 2016, which will see the commissioning and ramp-up of the Las Bambas project. We revise our valuation of MMG from US$2.62/share to US$3.0/share. Based on our updated earnings forecasts, the stock trades at an attractive 2017e EV/EBITDA of 3.6x.
MMG reported robust Q414 and FY14 operating results, achieving record copper production and sales. While FY15 guidance points to lower copper and zinc output, we believe that the key market focus remains on bringing the Las Bambas project into production on time and on budget, as well as on the commodities price performance. With Las Bambas on track and copper looking oversold and set to recover, we expect MMG shares to be supported in the near term.
We increase our 2014/15 earnings estimates for MMG on the back of the strong H114 results and updated commodity price assumptions. As a result, our core NAV for the company moves from HK$2.0/share to HK$2.2. Following the increase in capex and commissioning delay, we in turn lower our net attributable valuation of Las Bambas to HK$0.44/share. At the same time, we remain positive on the project as we see a number of upside risks to our valuation and the copper market fundamentals remain strong.
MMG released a mixed set of Q214 operating results, with copper output down 12% q-o-q and zinc production up 2%. While FY14 guidance was slightly increased for copper and lowered for zinc, cash cost revisions are net-net positive and will partly offset the impact of lower zinc volumes. More importantly, commodity prices remain strong, representing the key upside risk to MMG earnings and valuation. This, as well as the progress on the Las Bambas project, should continue to support MMG shares.
We believe that the Las Bambas acquisition is value accretive for MMG on both NPV and multiples. Our revised valuation of Las Bambas is US$6.9bn or US$1.0bn adjusted for the acquisition cost. Based on our estimates, the deal would put the combined company on a 2016e EV/EBITDA of 3.1x. This compares to MMG’s standalone multiple of 5.5x. We believe the deal is not fully priced in and expect the re-rating of MMG shares to continue.
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