Solid Q414/FY14 production results outweighed by weak commodity sentiment
MMG (HK:1208) reported robust Q414 and FY14 operating results, achieving record copper production and sales. While FY15 guidance points to lower copper and zinc output, we believe that the key market focus remains on bringing the Las Bambas project into production on time and on budget, as well as on the commodities price performance. With Las Bambas on track and copper looking oversold and set to recover, we expect MMG shares to be supported in the near term.
Solid Q414/FY14 operating results
MMG delivered robust Q414 and FY14 operating results, achieving record copper production and sales, as well as demonstrating strict cost control at the C1 level. The company’s Q414 copper and zinc sales increased 27% q-o-q and 104% q-o-q to 56.4kt and 181.7kt respectively, while lead sales jumped 156% q-o-q to 30.2kt. In FY14, MMG sold 193kt of copper, up 2.9% on FY13, and 525kt of zinc, up 6.4% y-o-y. C1 cash costs for all operations were towards the lower end of guidance. The company sees FY15 copper production at 166-181kt, while zinc output is guided in the 440-510kt range. Based on the averages, this is 8% and 19% lower compared to FY14. While zinc production will be affected by the decommissioning of the Century mine, lower copper output expectations are a result of the more challenging mining and processing conditions at Sepon and Kinsevere.
Las Bambas is on track for Q116 production
As at the end of 2014, Las Bambas was 80% complete, with construction activity focusing on the processing plant, primary crusher and overland conveyor, as well as key surface infrastructure. The company continues to guide first concentrate production in Q116 and at this stage does not envisage any changes to the estimated capital cost to complete the project.
Valuation: Weak commodities weigh on the stock
In spite of encouraging production and cost numbers, MMG shares have been under pressure on the back of the falling copper price. Apart from softer demand, some correction in copper prices is justified by lower input energy costs and weaker commodity currencies against the US dollar, all of which lowers the marginal cost of production. However, we believe the downward move in copper is overdone and expect the copper price to gradually recover after the Chinese New Year holidays and further in Q2 as seasonal buying activity improves. This, as well as ongoing progress on the Las Bambas project, which appears to be comfortably on track for first production in Q116, should be supportive of MMG shares.
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