Amerigo Resources released 2013 production guidance this morning of 45-50 million pounds of copper and one million pounds of molybdenum.
It’s virtually the same as last year’s guidance (2012 production was 51.7M lbs copper, 1.057M lbs moly) – according to the company’s news release, the tailings it will process this year are lower-grade.
Hopefully it’s a conservative estimate that Amerigo can exceed, but the copper producer won’t have to beat guidance to achieve markedly better cash flow. That’s because of declining fixed costs, including lower power bills that will slash cash costs by 40 cents for every pound of copper produced. With a four-year labour deal in hand and a 6% dividend yield, Amerigo seems poised to perform.
I wrote up Amerigo on Nov. 7, and the company also figures in the latest issue of Global Mining Observer, a London-based monthly news bulletin. The article, which quotes your humble scribe and is authored by journalist Alex Williams, focuses on how supply constraints in copper powerhouse Chile are helping put a floor on copper prices, benefiting copper miners with rising production levels.
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Here’s the article:
Chile’s Copper Delays Flatten Output Expectations
Global Mining Observer
Chile, the world’s largest copper producing country with output in 2012 of 5.4m tonnes, equal to 27 per cent of global supply, is showing increasing signs of output congestion, flattening anticipated production increases.
Permitting delays have impacted seven of Chile’s largest copper projects in recent weeks, including expansion of Collahuasi, jointly-owned by Xstrata and Anglo American.
Rising costs have also dented the country’s project pipeline. Barrick Gold has suffered repeated delays at Pascua Lama, its gold-copper mine on Chile’s border with Argentina, inflating costs threefold in three years to $8.5bn. Also blaming costs, Antofagasta has terminated work at Antucoya, dropping 80,000 copper tonnes from 2014.
The delays lend support to prices and bode well for existing producers with rising production levels, including Amerigo Resources, the processor of tailings at state-owned giant Codelco’s El Teniente mine.
“Copper and moly production for 2012 were both records,” says investor and editor of WorldofMining.com, James Kwantes. “They’re locked into lower power contracts and did a four-year labour agreement. Costs are fairly fixed, so any increase in the copper price goes to the bottom line.”
Founded by Codelco executives, the business boasts some of South America’s heftiest mining bigwigs, including Alberto Salas, president of the national mining lobby and Klaus Zeitler, chairman of Peru’s Rio Alto. It is currently negotiating with Codelco to process a second tailings pond and will publish production guidance this afternoon.
The company’s power agreement, effective this month, lifts it off variable rates and diesel generators, a common but costly feature of an industry that has overloaded domestic grid capacity.
London-listed Aggreko, the world’s largest generator rental group, which supplies BHP Billiton and Codelco with intermittent power in Chile, remains another unlikely beneficiary of the country’s copper congestion.
“Amerigo is under the radar,” says Kwantes, “they don’t really promote themselves. The stock is viewed as a ‘junior’ even though the company is a profitable copper producer.” Valued at C$114m ($115m), Amerigo offers a rare yield in the mining sector, currently at
6.2 per cent.