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Atalaya accelerates expansion at Rio Tinto

Atalaya Mining has now reached commercial production at the Rio Tinto copper project in Spain

Blast at Rio Tinto

Just how significant was Atalaya’s (LON:ATYM, TSE:AYM) declaration earlier this month that commercial at Rio Tinto will begin on 1st February?  

On one level, it was normal course of business for a mining company making the transition from developer to producer.

Certainly, chief executive Alberto Lavandeira wasn’t putting any bells and whistles on the announcement when speaking on the phone from Spain shortly afterwards.

“It shows that after a period of three months that the plant and installations are ready to run in a commercial way,” he says.

Production from of copper in concentrate is now well underway.

“The tests work. We have been three months steady. And at the end of January we will start accounting as a producer rather than as an investment vehicle.”

So far, so prosaic.

As a psychological milestone though, the declaration of commercial production does have a deeply rooted significance.

Longer-term investors in the mining space will remember how mired in local hostility and bureaucratic red-tape Rio Tinto became during the last decade.

Indeed at many points in the journey it looked as though the project, as a redevelopment of the old original cornerstone of the mighty Rio Tinto PLC (LON:RIO), wouldn’t be happening at all.

When it wasn’t the objections of local landowners, it was the vagaries of the capital markets that stood in the company’s way, to the point where at one stage it seemed that Rio Tinto was coming to be regarded by the capital markets as a litmus test about whether small mining projects could fly in Spain at all.

But enter Alberto Lavandeira and a more Spanish-centric management team in March 2014.

At that stage, things started to move rather more rapidly.

Indeed, they’ve moved so rapidly that a two-stage ramp-up plan has had to be condensed into a single plan because the rate at which output is likely to increase is now likely to render the first plan redundant.

The plan now is that production should hit around nine mln tonnes of copper concentrate by mid-year, running through the previous 7.5 mln tonne interim target along the way.

The accelerated ramp is also likely to drive cost savings over and above the numbers that Atalaya has already put out into the market.

Allowing that Rio Tinto is fairly low grade, as is perhaps understandable for a mega pit that was previously mined for decades by one of the world’s great mining giants, the company expects to produce 45,000 tonnes of copper in concentrate annually at a cost of US$1.90 per pound over the life of the mine.

Of course, it would be nice if the copper price was a bit higher than the current US$2.00 per pound, but while conceding that the current pricing isn’t altogether helpful, Lavandeira is confident that the situation will improve.

“We think it’s going to be higher in the near future and that 2016 will be a bottom,” he says.

If he’s right, then paradoxically Atalaya will have hit the market almost exactly right. Because if the copper price does recover and demand picks up, there are very few new projects in the pipeline that will be able to take up the slack.

“There is a shortage of production in the next four years,” says Lavandeira. “There is simply no source of copper to simply start production on.”

Atalaya then is a play on copper, pure and simple.

Certainly that’s the view of Trafigura, one of the world’s great commodities trading houses, which has held a 22% stake in Atalaya for some years now.

Not that it has any over-riding influence.

The top four shareholders are fairly evenly balanced in terms of the distribution of their stakes and on the whole, reflects Lavandeira, that’s a good thing.

“We’re lucky,” he says. “We’ve been able to finance with liquidity.”

And indeed, the company may do so again shortly, as there’s likely to be a small €20mln shortfall in the overall €90mln costs of the ramp up to 9.5 tonnes per year.

If now doesn’t seem like the best of times to be financing extra production, bear in mind that Lavandeira and his team have now done in less than two years what no-one else had been able to do over the course of a decade and more.

Rio Tinto was dead in the water at the height of the boom.

It’s perhaps ironic that now we are deep into bear market territory it’s finally up and running. But that in itself is testament to the energies of the new management team and points the way to great things as and when the market recovers.




Quick facts: Atalaya Mining

Price: 190 GBX

Market: AIM
Market Cap: £260.95 m

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