Borborema And Apoena Projects Will Expand Production Capacity

Key Takeaways

• Aura's growth projects and increased production at Borborema aim to significantly improve future revenues, EBITDA, and earnings.
  
• Strategic investments in production and robust gold prices drive EBITDA growth, enhancing shareholder returns via buybacks and dividends.
  
• Aura Minerals faces challenges with production inconsistencies, high project costs, and volatile market conditions impacting revenues, net margins, and investor sentiment.

Catalysts

A gold and copper production company, focuses on the development and operation of gold and base metal projects in the Americas.

• Aura is set to significantly increase its production capacity by ramping up commercial production at Borborema in Q3 and Q4, aiming to boost output by 82,000 to 84,000 ounces in the first year with lower cash costs, likely enhancing future revenue and EBITDA.
  
• The strategic investment phase in Apoena to open the pit suggests a temporary decrease in production, leading to higher future outputs after two years, which should improve long-term revenues and margins.
  
• Robust gold prices and stable cash costs are expected to continue driving record EBITDA growth, benefiting net income excluding non-recurring losses, thereby potentially increasing earnings.
  
• Aura’s ongoing growth projects, including the construction of Borborema on time and budget, and the ramp-up of new projects, indicate a pathway toward achieving a projected production target of over 450,000 ounces, expected to elevate future revenues and earnings.
  
• The renewed share buyback program and consistent dividend payments signal strong shareholder returns, supported by Aura’s belief in their stock’s undervaluation, which can sustain EPS growth.

Aura Minerals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aura Minerals's revenue will grow by 24.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.9% today to 31.9% in 3 years time.
• Analysts expect earnings to reach $420.2 million (and earnings per share of $5.2) by about August 2028, up from $-60.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $345.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.6x on those 2028 earnings, up from -38.7x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 18.1x.
• Analysts expect the number of shares outstanding to grow by 2.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

Aura Minerals Future Earnings Per Share Growth

Risks

• The company's production was 7% below the previous year’s quarter and 9% below the previous quarter, impacted by mining inconsistencies for gold, which could potentially affect revenues.
  
• Aura is currently in an investment phase, with high cash costs for projects like Apoena, reducing net margins as production increases are only expected after this phase in two years.
  
• The company's net income reported a significant net loss of $72 million due to non-realized losses from gold price volatility against hedges, impacting the earnings.
  
• Aura's liquidity concerns are highlighted by low daily trading volumes that may hinder securing significant investors, potentially affecting investor sentiment and stock performance.
  
• Costs at certain operations like Almas have been volatile with high strip ratios and other changes, affecting all-in sustaining cash costs and potentially impacting net margins adversely if similar issues arise.

Valuation

• The analysts have a consensus price target of CA$23.969 for Aura Minerals 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 CA$34.99, and the most bearish reporting a price target of just CA$12.95.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $420.2 million, and it would be trading on a PE ratio of 4.6x, assuming you use a discount rate of 7.3%.
• Given the current share price of CA$38.62, the analyst price target of CA$23.97 is 61.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.