Not worth its weight in copper

Copper 360’s first financial results since listing on the JSE show that it has a big mountain to climb to justify its current share price.

The company published its audited financial results for the financial year that ended 28 February 2023 on 3 August 2023.

It was concerning that it failed to submit its financial statements within four months after its financial year-end as stipulated by the JSE listing requirements.

The JSE released a statement on 3 July, reporting the late submission of Copper 360’s financial statements to the public.

The JSE notified investors that the company was at risk of being delisted if it did not release its financial statements on or before 31 July.

Copper 360 released its financial results three days after this deadline, which gave investors the first peek into its financial position since its listing.

The results were underwhelming. It generated revenue of R33.3 million. However, 17% (R5.8 million) of this revenue was paid to revenue royalty holders.

These revenue royalties were paid to initial investors in Copper 360, mostly related parties, including CEO Jan Nelson.

These royalty holders have the right to 17.19% of the company’s pre-expenses revenue from Cape Copper Oxide Company (CCOC) until all its copper ore is depleted.

These royalties, claiming 17.19% of all CCOC’s future revenue, were sold for R31 million in 2021.

If you discount the royalties, Copper 360 only generated R27.5 million in revenue. The cost of sales was R77.6 million, almost three times more than its available revenue.

Copper 360, therefore, generated a gross loss of R50.1 million after accounting for the royalty payments.

When considering all operating expenses and finance costs, the company generated a loss before tax of R78 million.

Copper 360 analysis

Popular valuation methods show that Copper 360 must perform exceptionally well to justify its current market cap.

The most popular ratio – price-to-earnings ratio (P/E) – is meaningless because Copper 360 did not make a profit or report any earnings.

Copper 360’s price-to-sales and price-to-book-value ratios can be compared with similar mining companies.

BHP Group has the largest copper mines in the world and generates a significant portion of its revenue from copper. It, therefore, serves as a good comparative company to Copper 360.

Copper 360 has a price-to-sales ratio of 72 times sales. This is significantly higher than BHP’s price-to-sales ratio of 2.8 times.

Copper 360’s price-to-book-value of 25 times is also much higher than BHP’s price-to-book-value of 3.5 times.

This suggests that Copper 360’s market price is significantly overvalued compared to BHP.

If Copper 360’s price-to-sales ratio were in line with BHP’s, it would trade at a share price of R0.15 per share.

If it were to trade at a price-to-book-value ratio in line with BHP’s, its share price would be R1.01 per share.

Copper 360 is currently trading at R4 per share.

Price Multiple	Copper 360	BHP Group
Price-to-sales	72	2.8
Price-to-book-value	25.06	3.5