Federation And Great Cobar Projects Will Expand Base Metal Output

Key Takeaways

• Growth from new project ramp-ups and plant optimisations is expected to increase base metals output, improve margins, and leverage global demand trends in critical minerals.
  
• Operational efficiencies, cost control, and a diverse commodity mix will provide financial stability, revenue growth potential, and long-term strategic flexibility.
  
• Short production horizons, rising costs, and regulatory pressures threaten long-term profitability, with operational and funding risks amplified by resource uncertainty and sustained capital needs.

Catalysts

Engages in the exploration and production of mineral properties in Australia.

• Ramp-up of the Federation project ahead of plan, along with preparations to bring the Great Cobar project online, is set to significantly increase Aurelia Metals' copper and base metals output within a 2-year horizon. This directly positions Aurelia to benefit from increasing demand and pricing power driven by global urbanisation, electrification, and infrastructure investment-supporting future revenue growth.
  
• Expansion and optimisation initiatives at the Peak processing plant, including water management projects and leveraging latent capacity, are expected to drive higher throughput and improved recoveries, especially for zinc, copper, and lead. This should translate into higher production volumes at a lower incremental cost, positively impacting EBITDA margins and future earnings.
  
• Enhanced operational efficiencies and ongoing cost optimisation programs (including third-party-led productivity initiatives and owner-operator transitions) are set to further lower unit costs and boost net margins, especially as the company transitions more fully into higher-margin base metals.
  
• The company's diversified commodity mix (gold, copper, zinc, lead) offers insulation from single-commodity price volatility. This positions Aurelia to capture increased sales from metals essential to the global energy transition and supply chain security, providing stability and upside potential in revenues and creditworthiness.
  
• Strengthening of the balance sheet through internally funded growth (no new debt drawn), combined with sustained focus on exploration and reserve/resource upgrades, enhances financial flexibility and underpins long-term earnings growth, enabling Aurelia to execute on industry-wide opportunities created by supply constraints and robust long-term demand for critical minerals.

Aurelia Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aurelia Metals's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 12.6% in 3 years time.
• Analysts expect earnings to reach A$54.2 million (and earnings per share of A$0.08) by about July 2028, up from A$14.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$84 million in earnings, and the most bearish expecting A$35.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, down from 24.4x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 13.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

Aurelia Metals Future Earnings Per Share Growth

Risks

• Short mine life and reserve depletion risk remain, as heavy reliance on infill drilling and resource updates at Federation introduces uncertainty about long-term production sustainability; if new reserves are not defined, revenues and margins may be negatively impacted.
  
• Industry-wide labor shortages and intense competition for skilled operators, highlighted as ongoing challenges in the operating region, could result in persistent operational disruptions and higher labor costs, potentially compressing net margins and increasing execution risk.
  
• High and potentially rising all-in sustaining costs are acknowledged as a continuing area requiring improvement; if cost reduction initiatives and third-party interventions fail to deliver sustained efficiency gains, net margins could be compressed, especially during periods of lower commodity prices.
  
• Ongoing capital requirements for project development (e.g., Federation, Great Cobar) and exploration imply continued spend over the medium term; if cash generation falters or working capital outflows increase, Aurelia may face dilution or higher debt, negatively affecting earnings per share.
  
• Greater regulatory focus and ESG scrutiny, noted as a key area of attention, are likely to escalate compliance costs and operational complexity over time; failure to maintain top-tier safety and sustainability performance could increase costs or restrict access to new projects, impacting future revenue growth and profitability.

Valuation

• The analysts have a consensus price target of A$0.334 for Aurelia Metals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.5, and the most bearish reporting a price target of just A$0.27.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$430.7 million, earnings will come to A$54.2 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of A$0.2, the analyst price target of A$0.33 is 38.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.