Katanga Mining Ltd Ord KATFF

2019 Earning Estimate Without Exporting Cobalt - KAT

[Sogosohubidu201]

Goldman predicts $7,000 USD/tonne of copper price in 2019 while Citi predicts $6,700 USD/tonne in the next 3-6 months.  I will use the lower copper price of $6,700/tonne for KAT earning estimation in 2019. But copper will be in deficit in 2019 and 2020, and severe deficit will start from 2021 and going forward.  So we should see continue increase in copper price in the next few years.

Let me ignore KAT cobalt product by assuming the produced cobalt in 2019 will be exported next year. Let's see the earning of KAT with copper product alone.

285,000 Tonnes of Copper in 2019
$6,700 per tonne of copper price

Revenue: 285,000 x $6,700 = $1,909.5 million USD
Cost of Sale: $1,340.0 million USD (mining and processing costs, copper royalty, transportation, depreciation, and other costs, etc.).
Gross Profit: $569.5 million USD
Interest and G & A Cost: $414.0 million USD
Tax: $45 million USD
Non-controlling Interests: $83 million USD

Total KAT net income in 2019: $27.5 million USD or $36 million Canadian dollars

Since the market is always forward looking animal, I will project KAT share price at $1.2-$1.5 by the end of this year and $5 by the end of next year.

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[Dragone64]

So you are talking of a net operating profit of roughly 30m for 2019? How should that support a SP of 1.2 to 1.50? 30m is basically nothing......to support a SP of 1.2 to 1.5 I would rather expect a net profit in the region of 300 to 500m (depending on the PE you would like to apply and I think you might take 50% discount on the average PE of the industry). Am I wrong?

[Lech1988]

Yes but if KAT then suddenly offloads $1b+ of cobalt in 1Q20 its not like the market is going to fully discount that towards the end of this year.

[patels96]

Great post... however mining companies are seldom priced using the P/E ratio. I've been covering a lot of mining companies and the 3 comps that are used quite extensively are: EV/EBITDA, P/NAV, and P/FCFF Ultimately cash flow rather then earnings matter more in mining the mining industry. This is because there are always CAPEX budgets for the next fiscal year due to expansion or sustaining

[Brandonrr]

Patels96 what is your prediction for share price by the end of year?

[patels96]

I see prices hovering around $0.7 until the US China is announced. After that deal is announced, I see risk on especially for investors looking to get into the mining sector (which has been beat quite a bit). I see the price of KAT increasing very fast by April/May of this year (so in 2 or 3 months) to around $1.20-$1.30, and awaiting news on Cobalt sales resumption.

[Lech1988]

Yes resolution in the trade war should see a reset higher across the materials space and KAT should get a lift.  1-2 CAD trading range seems reasonable by the end of this year.   With the halt in Cobalt sales we will need to wait a little longer (again) for KAT to really get going.

[Gws0623]

In my opinion, the only key for KAT is clarity on the cobalt....government approvals, capital costs, timing of sales, future price, and royalty rates (if new gov't will discuss the new mining code).  At the end of 2018 KAT already had more than 5,000 tonnes of unsold cobalt in inventory and this year they will be adding another ±6,500 tonnes each quarter....giving them something like

[Lech1988]

DRC is just punishing KAT for cutting Gecamines out of the decision to halt sales.  It will get resolved swiftly one way or another.  Frankly I am glad Glencore seems to be tightening its hold on the day to day operations of KAT; seems like they were focusing on the ramp at the expense of pretty much everything else.