Cia. Minera Autlan SAB is the third-worst performing mining company among global peers this quarter. Yet analysts consider the stock a buy opportunity as North America’s largest producer of ferro alloys expands into renewable energy.
Autlan is planning to build wind and hydroelectric power plants to reduce electricity costs, which accounted for 28 percent of the San Pedro Garza Garcia, Mexico-based company’s ferro alloy production costs in the first quarter. The stock has tumbled 11 percent this quarter, the third most among 15 global mining peers such as Vale SA and Rio Tinto Plc, according to data compiled by Bloomberg.
Generating its own power and reducing dependency on state-utility Comision Federal de Electricidad will boost Autlan’s profit margins and probably benefit the stock, according to Jose Helue, an equity analyst at Interacciones Casa de Bolsa.
“The potential return is much better now than it was at the beginning of the year and opens an opportunity for investors,” Helue said in a phone interview from Mexico City.
Autlan is targeting producing 75 percent of its own electricity in five years, according to Chief Financial Officer Gustavo Cardenas.
The stock slipped to 11.67 pesos Monday from 15.58 pesos on Jan. 2. The shares have five buy and two hold recommendations, according to data compiled by Bloomberg. Autlan rose 11 percent to 12.95 pesos as the close in Mexico City. The company said in an e-mailed statement it has nothing to disclose after the stock increased.
Autlan reported a first-quarter net loss of 3.8 million pesos on April 23 compared with a profit of 20.6 million pesos a year earlier. The loss was primarily from a depreciation of the peso, Cardenas has said. The currency lost 3.5 percent against the U.S. dollar in the first quarter.
Autlan joins Mexican companies Industrias Penoles SAB and Cemex SAB in turning to renewable energy sources to generate power and cut costs. Cemex announced the formation of a joint venture with Pattern Energy Group LP in February to develop at least 1,000 megawatts of renewable-energy projects by 2020. Silver miner Penoles is constructing a 200-megawatt wind energy project with Energias de Portugal SA to be completed in 2016.
Mexico wants to generate as much of 35 percent of the nation’s power through alternative sources by 2024 after legislation was passed in late 2013 to open the nation’s energy industry to private competition.
Autlan is considering several financing options such as a follow-on share sale to construct a second hydroelectric plant and wind parks, CFO Cardenas said in a phone interview from San Pedro Garza Garcia last week. The board approved the sale of as much as $100 million of additional shares at any time this year.
“We have a series of investment projects, from developing new energy generation projects to a project to enrich and improve our minerals,” he said. “Part of the financing could come from debt. However, given that we want to maintain a healthy debt level, we are thinking about financing part of it with capital.”
Autlan, Mexico’s only producer of ferro alloys used to make steel, is renaming the company to incorporate energy, mining and ferro alloy divisions, Cardenas said. Autlan said in March that it would drop Minera from its name to better represent the company’s entry into power generation.
“The change of name and logo support our plan to develop a new way to see the company,” Cardenas said. Autlan was compelled to change its image “given that we aren’t only a mining company,” Mariela Herrera, Autlan’s director of investor relations, said in a phone interview.
Changing its name could benefit the shares as it may help avoid stock fluctuations linked to metal prices, which are unrelated to Autlan’s operations, Helue said.
“Often when investors hear ‘mining’ they judge all the mining companies the same, even though Autlan is more closely related to making a material used in steel production,” he said.
Autlan generated 30 percent of its own electricity in the first quarter through the Atexcaco hydroelectric plant, which the company obtained when it purchased Cia. de Energia Mexicana last year. If Autlan can continue to increase electricity production, it could result in “very strong benefits to the company’s margins,” according to Laura Villanueva, an equity analyst at Monex Casa de Bolsa in Mexico City.
“If Autlan continues with its strategy to produce more of its own electricity, it will have very positive impacts on Ebitda and reverse further net income losses,” she said. Ebitda is earnings before interest, taxes, depreciation and amortization.