Borborema Ramp Up And MSG Turnaround Will Drive Stronger Long Term Production And Margins

Catalysts

About Aura Minerals

Aura Minerals is an Americas focused gold and copper producer growing through new mine development, disciplined acquisitions and ongoing exploration.

What are the underlying business or industry changes driving this perspective?

• Ramp up of Borborema toward commercial production in September, followed by optimization of a low cost plant flowsheet, is expected to lift group production volumes while reducing average all-in sustaining cash costs and expanding EBITDA and operating margins.
• Advancement of Era Dorada from PEA to feasibility study, with high grade underground potential and already robust economics, positions Aura to add roughly 95,000 ounces of annual production with moderate CapEx, which may support future revenue growth and free cash flow generation.
• Integration and turnaround of MSG, leveraging Aura’s underground and cost discipline expertise, may unlock higher productivity and lower unit costs versus the mine’s current $2,000 per ounce cost base, which would improve consolidated margins and earnings power.
• Ongoing organic growth pipeline, including Matupa, Almas underground expansion and Serra da Estrela copper, offers multiple options to sequence new, relatively low CapEx projects into the existing precious metal and copper pricing environment, which may support sustained production and cash flow generation.
• A strengthening balance sheet and NASDAQ listing, combined with a track record of on time, on budget builds and disciplined M&A, may enable accretive growth at rising scale in a capital constrained mining sector and could support higher valuation multiples over time.

Assumptions

This narrative explores a more optimistic perspective on Aura Minerals compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Aura Minerals's revenue will grow by 39.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -5.6% today to 48.2% in 3 years time.
• The bullish analysts expect earnings to reach $1.0 billion (and earnings per share of $14.0) by about December 2028, up from $-42.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $507.3 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.6x on those 2028 earnings, up from -94.3x today. This future PE is lower than the current PE for the CA Metals and Mining industry at 24.4x.
• The bullish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.38%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Aura’s growth strategy depends heavily on successfully executing multiple projects in parallel, including Borborema ramp-up, MSG turnaround and the eventual construction of Era Dorada and Matupa. Any delays, cost overruns or operational setbacks across these projects could erode the expected scale benefits and constrain revenue growth and EBITDA expansion over the long term, ultimately pressuring earnings.
• The company is materially exposed to gold prices and has significant gold collar hedges extending to 2028 at a strike price of $2,400. If spot gold remains structurally higher than hedge levels or becomes more volatile, realized prices could underperform the market and the company may continue to record sizable noncash and realized hedge losses, which would limit upside to net revenue and compress net margins and earnings.
• Key future value drivers such as Era Dorada in Guatemala and the underground expansion at Almas rely on obtaining and maintaining robust social license and community support in jurisdictions with complex political and social dynamics. Any deterioration in community relations, permitting disputes or regulatory changes could delay or downsize these projects, reducing long term production growth and weakening future cash flow and earnings.
• The strategy to grow through disciplined M&A and to turn around high cost operations like MSG assumes Aura can consistently improve productivity and lower all in sustaining cash costs. If integration proves more complex than anticipated or copper and gold cost inflation persists, MSG and future acquisitions may remain structurally higher cost, dragging on consolidated margins and limiting improvement in net margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Aura Minerals is $59.0, which represents up to two standard deviations above the consensus price target of $49.0. This valuation is based on what can be assumed as the expectations of Aura Minerals's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $59.0, and the most bearish reporting a price target of just $34.2.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 7.6x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $48.37, the analyst price target of $59.0 is 18.0% 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.