The Road Ahead for Amerigo Resources
French cabling specialist Nexans (OTCPK:NXPRF) (OTCPK:NEXNY) is currently the largest position in my stock portfolio and I’ve been eyeing copper producers to mitigate some of the risks. Amerigo Resources (OTCQX:ARREF) (TSX:ARG:CA) has piqued my interest, despite facing a challenging autumn in 2023 due to heavy rains in Chile. However, with global copper surplus concerns waning, I anticipate a promising 2024 for Amerigo. Let us delve deeper.
The Business and Financial Performance
Amerigo is involved in copper production by processing the daily waste material at the El Teniente mine of Chilean state-owned copper giant Codeldo. Additionally, it produces about a million pounds of molybdenum per year as a by-product, contributing to reducing the unit cash cost.
The company’s tailing retreatment business presents low CAPEX needs and eliminates the requirement for investing in exploration activities. With institutional investors and Amerigo’s management owning a significant portion of the company, the capital allocation strategy focuses on returning cash to shareholders through dividends and share buybacks during periods of high copper prices.
Acknowledging the recent production challenges, such as heavy rains in central Chile disrupting operations, it is evident that Amerigo faced a rough patch in 2023. However, Q4 2023 production resumption signals a potential turnaround.
Looking at the global copper market, the closure of the Cobre Panama mine and the resulting impact on the expected surplus could reinforce high copper prices throughout 2024. Despite the historical correlation with copper prices suggesting an expensive outlook for Amerigo, the potential for a lucrative 2024 cannot be dismissed.
Assessing the Investment Outlook
Amerigo’s struggles in Q2 and Q3 are likely to be followed by a more favorable Q4 2023, with expectations of strong financial results to be released in late February. The looming closure of Cobre Panama could potentially keep copper prices buoyant, paving the way for a robust 2024 for Amerigo and the likelihood of a double-digit shareholder yield.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
