Aura Minerals: Undervaluation and strong growth!

Unknown, but incredibly successful! Aura Minerals was able to double its gold and copper production within five years by the end of 2023. It now aims to double again by the end of 2025. Despite this dynamic growth, the company has very solid finances and has so far been under the radar of many investors.

Target: 450,000 ounces of gold by the end of 2025

Rodrigo Barbosa, CEO of Aura Minerals (C$8.50; $ORA), outlined his company’s ambitious growth plans at the Precious Metals Summit in Beaver Creek (Colorado) in September 2023. He wants to produce 450,000 ounces of gold equivalent per year by the end of 2025. To achieve these 450,000 gold equivalent ounces (GEO), three new mines are being built. All three are located in Brazil. Almas, an open-cast mine, has already started production and is scheduled to ramp up in 2024. Borborema is under construction and the investment costs (CapEx) of USD 188 million are largely covered under a royalty agreement. A feasibility study has been carried out for Matupa. Although some approvals are still pending, construction is scheduled to start this year. Aura Minerals already owns three producing mines in Mexico, Honduras and Brazil.

Aura Minerals: stabilization on the cost side

Rodrigo Barbosa is confident that production costs have stabilized in the meantime. In 2021 and 2022, these had increased significantly – as in the industry as a whole. For the new projects, he expects an increase of 15% to 20%: “Nevertheless, we managed to build Almas without exceeding the planned budget.” It was not only the local team’s cost savings that contributed to this. A generous safety buffer was already built in when calculating the construction costs. Aura Minerals expects all-in sustaining costs (AISC) of USD 1,290-1,459 per ounce for 2024. The AISCs of the new projects are expected to be below USD 1,000 per ounce.

Synergies from three new mines

The CEO primarily sees technical synergies at the new mines. What was learned during the construction of Almas will be applied at Borborema. And then the construction of the Matupa mine will follow. The company itself sees Brazil as a good location for a mining company as long as it adheres to ethical principles in terms of ESG standards. “If you create jobs for the local population and train them, you are welcome as an investor. But you can’t build a mine against the will of the local population,” says Barbosa. The company is particularly proud of one thing: there was not a single significant operational accident in 2023.

Aura Minerals is aiming for a ratio of two-thirds gold to one-third copper in terms of revenue. As the three new mines are all gold mines, the company is interested in a takeover in the copper sector: “The difficult market at the moment is good for acquisitions,” believes Barbosa. In November, a “strategic investment” of C$ 3 million was made in the Canadian explorer Altamira Gold (corresponding to a share of 11.35%), which has a large project in Brazil. However, this is only a small step.

2023: Year of transition

On February 20, Aura Minerals presented the figures for the recently completed financial year 2023, which can be described as a year of transition. Production fell slightly compared to 2022 from 241,421 to 235,856 GEO, but was up year-on-year in the fourth quarter. Remarkably, the cash position grew from US$ 127.9 million to US$ 237.3 million (both as at December 31) despite the expenditure for Almas, while net debt rose only slightly from US$ 77.4 million to US$ 85.2 million.

If you look at the figures for 2023 and the guidance for 2024, you quickly realize why Aura Minerals can grow strongly without ruining the balance sheet and even pay out a high dividend or buy back its own shares: The company generates stable free cash flows (2023: US$ 88 million) and only builds smaller mines that it can pay for without financial dislocation.

Aura Minerals: Production profile

Four mines are currently in operation. Aura Minerals expects production of 70% gold and 30% copper. In total, the management expects production of between 244,000 and 292,000 GEO. Costs (according to AISC) are expected to be between US$ 1,290 and US$ 1,459  per ounce. With the upper value, Aura Minerals would still be slightly below the cost level of the major gold companies.

The Borborema mine, which is currently under construction in Rio Grande do Norte, is designed for an annual production of 83,000 GEO and is expected to land at AISC costs of US$ 875 per ounce. Production is scheduled to start in 2025. Matupa, located in Mato Grosso, is expected to produce 55,000 GEO per year at a cost of just US$ 762. The construction costs for the mine (capex) amount to US$ 107 million.

Upside potential through resource expansion

In addition to its current development portfolio, Aura Minerals also has substantial upside potential through resource expansion. The company controls a substantial 630,000 hectare land package, of which only around 10% has been explored to date. Recent drilling has shown encouraging results. The Matupa project, for example, has relatively high resources that could be converted into reserves if required.

The share is significantly undervalued

Despite the operational outperformance of Aura Minerals, which really stands out in the industry, the share is still trading at a discount to its competitors. However, the prospect of production growth and the strong financial position speak in favor of the stock. According to analysts at Raymond James, the company is valued at just 0.35 NAV. Comparable medium-sized gold producers have an average NAV of 0.64. Based on the 2023 figures, the price/cash flow ratio is an extremely low 3.53. Echelon Capital Markets expects the price/cash flow ratio to fall towards 2.2 (2024) and 1.5 (2025) with the coming growth. The three Canadian analysts covering Aura Minerals shares all recommend buying the stock. The price targets range from C$ 14 (Canaccord) to C$ 14.50 (National Bank) to C$ 18 (Red Cloud). The price of Aura Minerals is currently around C$ 8.50. Incidentally, the major shareholder of Aura Minerals is Northwestern Enterprises, the private fund of Chairman Paulo Carlos de Brito. The Brazilian businessman holds 54.9% of the shares. The officially reported free float is 28%.

Why invest in Aura Minerals?

Aura Minerals is currently flying under the radar of most investors and is competing – in terms of attention – with around one to two dozen other mid-tier precious metals producers. The valuation gap offers an opportunity for a possible reclassification. Added to this is the high dividend. The current management took over the company in 2016 and has done an amazingly good job since then. The share looks very interesting on the chart. In 2019/2020, the share price multiplied in a steep jump upwards. Since then, the share price has corrected and roughly halved from the top. The price is currently entering a triangle. What is still missing is the breakout. The difference: In 2020, the P/E ratio was around 60, while the estimate for 2024 is 3.8. Conclusion: At the current level, the Aura Minerals share offers more opportunities than risks and represents a good combination of growth and balance sheet strength.

Please note: Investments in the capital markets are associated with a high level of risk. Investors can lose all of their capital – and more. Remember to do your own due diligence! The content of this website is intended exclusively for readers who are permanent residents of Germany. The German disclaimer applies (see below). 

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Graphics: Das Investor Magazin, Pixabay, Aura Minerals

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