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SECTOR: Materials SECTOR HEAD: Larry Ip SR. ANALYST: Luiza Santos JR. ANALYSTS: Rafael Grados , Kelly Kaminski, Reeve Porter, Pooja Sahani. Stock Report:. Investment Recommendation. Key Drivers :. Company Overview. Industry Overview. Small Cap Copper Companies Market Cap .
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SECTOR: Materials SECTOR HEAD: Larry Ip SR. ANALYST: Luiza Santos JR. ANALYSTS: Rafael Grados, Kelly Kaminski, Reeve Porter, PoojaSahani Stock Report:
Investment Recommendation KeyDrivers:
Industry Overview Small Cap Copper Companies Market Cap $1.83B $2.50 B $391.86M $879.75 M The Small Cap Copper Industry Companies that engage in the exploration and extraction of copper deposits in the United States and Canada, processing the copper into commoditized cathode sheets.
Revenue Generation 1. Exploration 2. Development 3. Supply Contracts 4. Operations 5. Refining 6. Sales
Trend #2: Copper Output CAGR = 1.43% F F F Production RoC Y/Y
HBM vs. Competitors Mine Locations • Expansion into Peru Background: • World’s 2nd largest copper producer • Stable mining regulatory environment Competition: • Big players: BHPBilliton& TeckResources hold stake in copper operations • SmallPlayers:Not there Outlook: • Joy Global anticipate growing investment in Peruvian mine development • Southern Copper and Buenaventura continue to operate profitably HBM: 8 TCP: 9 TKO: 4 GMO: 2
Norsemont Acquisition Copper Equivalent Reserves 350% increase in copper reserves 190% increase in copper equivalent reserves +350%
HBM Financial Projections Revenue CAGR= 20.6%
Valuation 1yr Target Price $19.36 + 15.8%
Risks & Sensitivities Weight 45% 25% 15% 15%
Index Breakdown of Operations Cross-Sectional Analysis Financial Comps Index Performance Industry Revenues Initial Investment Recommendation Investment Thesis Materials Prices Simulator Risks Trends: Increase in Copper Prices US Copper Output
Investment Thesis Index
Breakdown of Operations Index • Mines • 777, Trout Lake, Chisel North, Basmalt • Goal: increase mineral grades and production • Concentrators • FlinFlon, Snowlake, Balmat • Goal: process minerals by separating them from gravel • Metallurgical Plants • Gets minerals from own concentrators or buys concentrates from third parties • Refines minerals • Sells to customers who make wires, tubes, and brass • Goal: increase sales
Trends: Increase in Copper Prices Source: Mintel/U.S. Census Bureau, Service Annual Survey Index
U.S. Copper Output CAGR = 3.18% Production(thousand tonnes) 2005 2006 2007 2008 2009 2010 E 2011 F Index Source: Business Monitor
Financial Comps Index Yahoo.com/finance
Risks Index • Tariffs and Exchange Rate Fluctuations • U.S. and Canada copper mining is an export-heavy industry • Revenues are sensitive to macro environment • Chinese tariffs are 5% on refined copper exports and 10% on blister and scrap copper • Labor • Union strikes may set back copper mining productions • Collahuasi copper miners 2010 • Environmental Regulations • Expenditure for pollution and abatement and control
Industry Revenue Index
Index Performance 2010 Index
Cross Sectional Analysis PEG EPS Growth Index
Initial Recommendation Index Due to the increasing global demand for copper, and slowdown of output of the top copper producer in the world, we believe the small cap US copper industry is an attractive investment opportunity Suggested company for further research and analysis: Hudbay Minerals