Weatherly International - Emerging Namibian Copper Producer
Weatherly (LON:WTI) (market cap £39m)'s stated objective is to establish a copper mining business capable of sustaining approximately 20,000 tonnes per annum of copper at average industry cost of production. They have total resources of 623k tonnes of JORC compliant copper and an additional 276k historical (source: Weatherly). Production has restarted at the Otjihase and Matchless copper mines and in April the market was advised that production for the rest of the calendar year would be 4,000-5000 tonnes. The company will issue quarterly production reports commencing July 2011.
At Tschudi they have just completed a preliminary metallurgical study and have decided to complete the study based on using the heap leach process. In fact, CEO Rob Webster said of the study:
“Results are better than we expected and fully justify the proposed route which will mean we can produce a final London Metals Exchange (LME) grade copper product within Namibia. This will be an important step both in terms of value adding and future employment. Accordingly, we are keen to complete the study and get the project underway as soon as possible.”
Berg Aukas, a lead-zinc asset, will be spun-out into China Africa Resources Plc (‘CAR’) and listed on AIM. The listing is well underway and shareholders are waiting for details of the share distribution.
The market will be updated on Tsumeb tailings feasibility in July and there is also Tsumeb West exploration and the possibility of a new mine at Tigerschlucht.
Weatherly is another company that not only managed to survive the downturn in 2008 but has emerged stronger for it. Having had to mothball completely, the decision to restart was made when copper was $7000 a tonne. To ensure the safest possible path forward, they have very sensibly hedged 34% of planned production to September 2012 at a weighted average of US$9560 per tonne.
The share price has fallen back from its highs, partly due to sentiment in the sector, partly due to statements made by the Minister of Mines in Namibia regarding licenses, and partly because the price had got ahead of itself. It’s hard to say when the resource sector will recover as a whole but with copper grades declining round the world, making copper projects ever more uneconomical, Weatherly are well placed to benefit from running economical projects. Clarification was obtained over the Namibian Government’s position on mining licenses and the market updated that WTI’s existing licenses are not impacted.
As for the price, there should be quite a bit of news flow in the second half of 2011, starting in July. For the full financial year (June 2012), crunching the numbers suggests that if copper production is in the region of 7000 tonnes, and copper stays around the $9000 mark, profit after tax could be in the region of $28m. There are 558.6m fully diluted shares out, so we are looking at an EPS in sterling somewhere in the region of 2.5-3p (@1.61 FX). All figures are very approximate and rounded. On a 10x multiple, that would suggest a 12-month price of 25-30p.
Looking into the 2013 full year, if production is around 13,000 tonnes, EPS would be around 7.5p and a target selling price would be circa 70p. WTI’s share price is currently 8.75p
The risks are a fall in the price of copper, political interference, a major economic downturn, or any of the usual hiccups seen in the mining industry but my take on it is that at 8.75p, WTI, assuming there is no major economic downturn, offers a good opportunity on a 12-24 month basis.
Disclosure: The author holds shares in WTI
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8 comments
Hi Susan
Sorry I should have said I don't count the first year of production. Also with the tax rate now at 44%, Max says WTI will not need to pay it for about $300m of earnings so I got that wrong.
I have revised the calcs a bit....
Copper price now set to $9750. $140m/£85m tax breaks will last for well over $300m in earnings.
July 2011 to July 2012: ~ £20m (This does not include the $10m court case bonus!)
July 2012 to July 2013: £25m (7100t)
July 2013 to July 2014: £70m (Tschudi in production taking us up to 20,000t)
July 2014 to July 2015: £70m (Tsumeb Tailings NOT included!)
July 2015 to July 2016: £70m (Tsumeb Tailings NOT included!)
July 2016 to July 2017: £70m (Tsumeb Tailings NOT included!)
July 2017 to July 2018: £40m (Tax could start here at @44%)
Working outs:
$9750 - $4000 = $5750 profit per ton
$5750 x 20,000t = $115,000,000 = £70m profit.
CAR distribution.
For all those, who hold under 300,000 shares, it does seem that, if one holds them in a nominee account one will receive the free shares after all at the higher rate.
Had a letter from my broker saying that, for counting purposes, my holding will be lumped together with all other nominee holdings for the purpose of the free share allocation ( ie 0.0043 CAR for every 1 WTI share)
These are my forecasts based on the current information and copper prices (subject to change in either direction).
2011 profit: £11-13m (+ likely $10m court case bonus NOT included!)
2012 profit: £26m
2013 profit: £50m (Tschudi in production with no silver)
2014 profit: £38m (Tax starts @37%) (Revenue from Tsumeb Tailings NOT included!)
2015 profit: £38m (Tsumeb Tailings NOT included!)
2016 profit: £38m (Tsumeb Tailings NOT included!)
If we could average £47m profit pa. Give us a conservative P/E of 8 this gives a market cap of £329m = Share price 70p
Johan - the average of your forecasts is more like £33m, which suggests a market cap of £260m on a p/e of 8.
Fangorn - No idea about the nominee situation.
Interesting note from Collins Stewart
http://www.proactiveinvestors.co.uk/companies/news/30791/weatherly-international-successful-flotation-of-china-africa-resources-allows-firm-to-focus-on-copper-production-30791.html
Market cap £39.5m, expected to produce 7,000-20,000 tons per annum, cash cost of below US$4,000 a tons but Dr. Copper is trading around $9,500 near it's peak of $10,000 a ton = big margin. Also think the management were very shrewd to have hedged 34% of their copper until Sept 2012 at an average of $9,560 per tonne which reduces risk of cash flow problems should there be a downturn in the copper price.
Am tempted to take a top up in this after today's fall....
I see from the CAR scrip dividend chatter that there is some confusion over exactly who qualifies(>300,000 WTI shares only?) on Advfn. Someone there mentioned that, for distribution purposes, nominee holdings might not be separated so even those with smaller holdings, such as 100,000, will be lumped all together by the nominee and we get the higher distribution rate pro rata.
Anyone have any further information in this regard. Ta
I saw that. It needs clarification. They are speaking at Proactive on Thursday, perhaps they will take the opportunity then.
Agreed - Good summary thanks. I have been watching WTI for a while and today have taken a position. The market cap is too low as they are already producing, good reosurce base & copper prices have been strong, and once production is ramped up further as the year progresses and beyond I expect the price to respond.
Minesite presentation is an interesting watch :
http://www.presentation-matters.co.uk/web/minesite/webcasts/81st_minesite_forum/81st_minesite_Weatherly.html
Also ex-div on the 01st of August, albeit a small dividend.