Katanga Mining Ltd Ord KATFF

KAT Earning Estimates for 2019, 2020 and 2021

[Sogosohubidu201]

KAT sells its cobalt based on MB low grade cobalt price and copper based on LME copper price.  Currently MB low grade cobalt price is around $57,000 USD per tonne, which is lot of higher than LME cobalt price around $40,000 per tonne.  LME cobalt market is not liquid and a small volume (e.g. 50 tonnes) can have a big swing on the price either way.  Cobalt price in China is around $50,000-$52,000 per tonne and has been at this level for a while.

Copper price looks bullish going forward, particularly medium and long term with tailwind on its back becasue of EV and green energy revolutions as well as lack of new big copper mines coming into production and decline in ore grade for existing major mines. Cobalt appears to be in surplus in the next 2 years and the market appears to price in already, but cobalt deficit may start in 2021-2022 becasue of faster conversion of ICE cars to EV cars than most have predicted.

From the above discussion, I will use $6,000/MT copper price and $50,000/MT cobalt price for KAT earning estimates as listed below:

Currently US market is traded at PE14.5 and Canadian market at PE12.  I will use PE10-12 for KAT price projections.

(1) 2019 Earning Estimate

285,000 Tonnes of Copper
26,000 Tonnes of Cobalt

Revenue 285,000 x $6,000 + 26,000 x $50,000 = $3,010 million USD
Cost of Sale: $2,066 million USD (mining and processing costs, royalties, transportation, depreciation and other costs, etc.).
Gross Profit: $944 million USD
Interest and G&A Costs: $450 million USD
Tax: $69 millions
Non-controlling Interests: $106 million USD

Total KAT Net Income for 2019: $319 million USD or $424 million Canadian Dollars
Earning Per Share: 22 cents Canadian per share

For P/E 10-12: projected share price for KAT by the end of 2019: $2.2 - $2.7 Canadian Dollars

(2) 2020 Earning Estimate

285,000 Tonnes of Copper
32,000 Tonnes of Cobalt

Revenue 285,000 x $6,000 + 32,000 x $50,000 = $3,310 million USD
*Cost of Sale: $1,916 million USD (mining and processing costs, royalties, transportation, depreciation and other costs, etc.).
Gross Profit: $1,394 million USD
Interest and G&A Costs: $450 million USD
Tax: $132 millions
Non-controlling Interests: $203 million USD

Total KAT Net Income for 2019: $609 million USD or $810 million Canadian Dollars
Earning Per Share: 43 cents Canadian per share

For P/E 10-12: projected share price for KAT by the end of 2020: $4.3 - $5.1 Canadian Dollars

*Cost of sale will benefit from the commission of sulfuric acid production, which saves about $150-200 million USD per year. It is estimated that 650,000 tonnes of sulfuric acid would be produced per year.  The cost save for transportation of sulfuric acid alone is huge.

(3) 2021 Earning Estimate

285,000 Tonnes of Copper
38,000 Tonnes of Cobalt

Revenue 285,000 x $6,000 + 38,000 x $50,000 = $3,610 million USD
Cost of Sale: $2,011 million USD (mining and processing costs, royalties, transportation, depreciation and other costs, etc.).
Gross Profit: $1,599 million USD
Interest and G&A Costs: $420 million USD
Tax: $165 millions
Non-controlling Interests: $254 million USD

Total Net Income for 2019: $761 million USD or $1,011 million Canadian Dollars
Earning Per Share: 53 cents Canadian per share

For P/E 10-12: projected share price for KAT by the end of 2021: $5.3 - $6.4 Canadian Dollars

Free cash flow numbers for 2020 and 2021 will be slightly above the earning numbers since the capital investments will be slightly lower than depreciation and amortization while it is opposite for 2019.

I think that KAT share price may have very good possibility to reach $10 by 2022 and 2023 because copper price may rise from $6,000/MT to $8,000/MT and cobalt price may spike by that time frame.

[Lech1988]

Very good post - seems reasonable and if anything a bit overly conservative regarding cost of sales.   

[InternalAudit68]

This post has been removed in accordance with Community Policy

[InternalAudit68]

This post has been removed in accordance with Community Policy

[Sogosohubidu201]

I was purposely increasing the Cost of Sale estimates by 20% from my fair estimations in order to be very conservative. I was also using lower copper price ($6,000/MT) than the industry would use ($7,000/MT) and lower cobalt price than the current MB cobalt price.  My estimates may be treated as conservative baseline estimates with only upside surprise. KCC owes KAT about $3.4 billions debt

[InternalAudit68]

This post has been removed in accordance with Community Policy

[patels96]

If you look at the financials statements the debt is due 2021

[Sogosohubidu201]

I knew. The debts will either be refinanced or re-arranged with Glencore. The reason, I guess, that Glencore and KAT put the debt due day in 2021 is that KAT would generate a lot of cash and be in a strong position to obtain finance from others and would not need to rely on Glencore only by then.

[nickcivic27]

The price target and earning forecast looks good.   Hope you’re right has anyone considered the down ward price risk from DOJ judgment and the results of the election?  What if Tshisekedi actually wins?

[Gws0623]

Thanks for your estimates.  I hope you're right! One area I question is the P/E assumption.  10-12x is very rich for a DRC, single mine operation.  Compare it with Norilsk Nickel in Russia that currently trades at a P/E of 8-9x and has a current dividend yield of 11-12%.  5-6x for KAT might be more appropriate.   On the other hand, you have definitely been conservative

[InternalAudit68]

This post has been removed in accordance with Community Policy

[Lech1988]

P/E doesn't seem all that high for a miner ramping up (growth) and the worlds largest Cobalt producer (again a "growth" market).  Would be high for a mature miner with older assets but not the case here.

[InternalAudit68]

This post has been removed in accordance with Community Policy