AMERIGO RESOURCES $0.65 (Toronto symbol ARG; TSINetwork Rating: Speculative) (604-681-2802; www.amerigoresources.com; Shares outstanding: 172.3 million; Market cap: $112.0 million; Dividend yield: 6.2%) processes copper and molybdenum from the waste rock from Chile’s El Teniente, the world’s largest copper mine. The contract runs at least through 2021. Amerigo also has an agreement to process material from the nearby Colihues tailings pond.
The company gets 94% of revenue by processing copper. The remaining 6% comes from molybdenum.
In the three months ended September 30, 2012, Amerigo’s revenue rose 5.4%, to $44.2 million from $42.0 million a year earlier (all figures except share price in U.S. dollars). The company offset lower copper and molybdenum prices by producing more of both metals.
Cash flow fell 40.7%, to $2.7 million, or $0.02 a share, from $4.6 million, or $0.03. However, that’s largely because the company paid a one-time, $4.6-million bonus to its Chilean workers on the signing of a new four-year labour agreement.
Electricity is a big expense for Amerigo, but it has a new power contract that started on January 1, 2013, at much lower rates than it was previously paying. As a result, Amerigo will save more than $20 million annually over the next five years. That should significantly improve its cash flow.
The company pays a semi-annual dividend of $0.02 (Canadian) a share. That gives the stock a high 6.2% yield. Amerigo’s dividend payout is just $3.4 million every six months, so its dividend is well covered by its cash flow. It also holds cash of $35.6 million.
Amerigo Resources is more speculative than many of our picks of the month. The stock is a buy, but for aggressive investors only.
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