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AS SOUTH AFRICA’S sole producer of refined copper, Palabora Mining Company – a member of the Rio Tinto Group of companies – is in it to win, having released impressive provisional results last week showing a year-on-year increase of 110% in profit after tax and a dividend of 724c/share for the year ended 31 December 2010. Palabora primarily produces copper. It also has its fingers in magnetite, which wasn’t shy to steal the shine by posting a 5% increase in production levels year-on-year. Magnetite is used in steel and iron production.
Palabora’s bottom line is affected predominantly by copper prices and exchange rates, with an approximate 91% of its cash and cash equivalents held in foreign currency. That means an expected weakening rand will work in its favour. The copper industry has seen increasing supply constraints due to production levels being significantly affected by a drop in average copper grades. And while some may believe the commodity price rally seen over the past year may soon shore up, supply deficits and increasing demand from both emerging and developed countries will leave the copper price going for a moon shot. Fixed urban investment in China has been a big driver of copper demand over the period and renewed investor risk appetite into developed markets will be key to that demand story into the future.
Word from management was that the weigh down on volumes was a result of operational challenges in its underground operations and smelter complex last year, but with those already having been addressed Palabora is already improving operational efficiencies, which should result in higher volumes this year. And while a sweetener to any investment opportunity is always welcome, a dividend yield of 6,36% alongside an attractive capital upside potential should leave no question as to why this stock is a screaming buy.
Palabora’s bottom line is affected predominantly by copper prices and exchange rates, with an approximate 91% of its cash and cash equivalents held in foreign currency. That means an expected weakening rand will work in its favour. The copper industry has seen increasing supply constraints due to production levels being significantly affected by a drop in average copper grades. And while some may believe the commodity price rally seen over the past year may soon shore up, supply deficits and increasing demand from both emerging and developed countries will leave the copper price going for a moon shot. Fixed urban investment in China has been a big driver of copper demand over the period and renewed investor risk appetite into developed markets will be key to that demand story into the future.
Word from management was that the weigh down on volumes was a result of operational challenges in its underground operations and smelter complex last year, but with those already having been addressed Palabora is already improving operational efficiencies, which should result in higher volumes this year. And while a sweetener to any investment opportunity is always welcome, a dividend yield of 6,36% alongside an attractive capital upside potential should leave no question as to why this stock is a screaming buy.
