Lower energy costs and higher prices for its main product are helping Cia. Minera Autlan SAB (AUTLANB) beat mining competitors hobbled by slumping metal prices.
Shares in North America’s largest producer of alloys used in steel have advanced 60 percent this year, the most among peers tracked by Bloomberg. The company last week forecast a 250 percent increase in quarterly operating profit and an 80 percent rise in earnings before interest, taxes, depreciation and amortization, suggesting recent gains are set to continue.
Autlan is benefiting from a 15 percent increase in the price of silicomanganese and an 11 percent rise in ferromanganese in the third quarter from a year ago, according to Alik Garcia, an analyst at brokerage Intercam in Mexico City. It’s increasing manganese exports while enjoying lower energy costs after acquiring a power plant.
“Autlan’s figures are very positive and defensive when compared to the general behavior of the global mining industry,” Garcia said in a telephone interview. “Ferro-alloys have been stable and Autlan is one of the principal beneficiaries.”
Not everyone agrees. Limited expansion plans for the San Pedro Garza Garcia, Mexico-based company, which is scheduled to report third-quarter earnings this month, will hinder growth, according to Fernando Bolanos, equity and mining analyst at Monex Casa de Bolsa, who has a sell rating on the stock. The stock trades at 27 times estimated profit, the most expensive level among 16 peers tracked by Bloomberg.
“It will be a challenge for Autlan to grow more than they are right now,” Bolanos said in an interview in Mexico City. “The numbers have been impressive, although growth depends on metal prices, which is something they don’t control.”
Autlan fell 1.2 percent to 16.04 pesos at the close of trading in Mexico City. Shares have fallen four straight days since reaching their highest value this year on Oct. 8.
Electricity Costs
The bullish third-quarter outlook is a result of cost efficiencies and savings in energy, Autlan said in an Oct. 7 statement. The company didn’t respond to interview requests or e-mailed questions.
“One of the principal costs in the mining sector is electricity,” Rodrigo Heredia, an analyst at Casa de Bolsa Ve Por Mas SA de CV in Mexico City, said in a phone interview. “Autlan’s ability to produce more of its own electricity and trim costs has freed up capital for more investment options.”
Ebitda has surged this year on lower energy costs since the acquisition of Cia. de Energia Mexicana SA de CV, known as CEM, and its Atexcaco hydroelectric plant, Garcia said. Ebitda has more than doubled in the past three quarters, according to data compiled by Bloomberg.
“A large part of the improved results we are seeing is due of the consolidation of the CEM hydroelectric plant,” Garcia said.
Niche Company
Autlan is considering selling power to third parties, which could prove profitable as state-run electricity company Comision Federal de Electricidad begins to allow more private generators as Mexico opens up its energy industries, according to Garcia. Several companies operating in the mining industry, such as Grupo Mexico (GMEXICOB) SAB and Grupo Carso SAB, have expressed interest in participating in the energy overhaul, Energy Minister Pedro Joaquin Coldwell said Aug. 22.
Autlan also benefits from being one of only a few international producers of ferromanganese and silicomanganese, which is used as a de-oxidizer and alloying element in steel production, with no exposure to other metals, according to Heredia. Steady demand for the niche products results in more price stability, he said.
Silver, Copper
Silver and copper prices have fallen 10 percent this year. Grupo Mexico, the country’s largest copper producer, has gained only 1.4 percent and silver producer Industrias Penoles SAB has lost 9.4 percent in the same span.
A peer group of 16 miners including Autlan has fallen 19 percent this year, according to data compiled by Bloomberg.
“Autlan produces a very particular product for a very particular market,” Heredia said. “Only four or five companies produce around 70 percent of the world’s ferromanganese. It is a very concentrated market and prices don’t fluctuate as much as copper.”
The company exports to the U.S. and sells to steelmakers in Mexico, including units of Ternium SA and ArcelorMittal.
Autlan stabilized its long-term finances by refinancing debt on April 30, according to its second-quarter earnings statement.
“The company has been able to reduce its leverage and has taken the appropriate steps to foment growth,” Garcia said. “Continuing to balance finances will provide areas for new investment and expansion.”
Source: Bloomberg