Philex Mining Corporation THU 09 NOV 2017

3Q17 earnings down 31.2% on lower

volume, higher costs
3Q17 earnings down 31.2% to Php384Mil. PXs core income in 3Q17 fell 31.2% to Php384Mil.
This brought 9M17 core income to Php1.1Bil, down 15% y/y. The results were significantly
lower compared to COL and consensus forecasts at only 54.4% and 60.5% of full year targets.
HOLD
Core earnings dropped mainly due to lower tonnage, lower ore grades and higher non-cash
charges during the quarter. 3Q17 revenues declined by 16.9% y/y to Php2.4Bil as total tonnage TICKER: PX
fell by 15.2% y/y and ore grades deteriorated. Meanwhile, non-cash costs such as depreciation FAIR VALUE: 10.10
increased by 9% to Php371Mil as a result of higher costs of new draw points. CURRENT PRICE: 7.64
Gold revenues down 28% y/y, while copper revenues up 3.4% y/y. 3Q17 revenues declined UPSIDE: 32.20
by 16.9% y/y to Php2.4Bil. This brought 9M17 revenues to Php7.2Bil, down 6.8% y/y. This
underperformed both COL and consensus estimates as the nine month figure only accounted
for 69.1% and 70.1% of full year forecasts, respectively. Broken down, gold revenues declined SHARE PRICE MOVEMENT
due to lower ore grades and tonnage, while copper revenues slightly increased as the drop in 110
volume was more than offset by the higher realized prices.

PX was able to mine out only 2.12Mil tonnes of ore during 3Q17. This was 15.2% lower compared
to the 2.50Mil tonnes mined during the same period last year. The miner principally attributed 100
the low mine delivery to equipment availability issues, limited flexibility related to ore handling,
and persistent bouldery ore. Furthermore, ore grades declined during the quarter. Gold grades
dropped to 0.385 grams per tonne from 0.419 grams per tonne during the same period last year. 90
Meanwhile, copper grades deteriorated to 0.193% from 0.209% the previous year.

In terms of price, realized gold price remained flat at US$1,272/oz. As such, price was not able to
offset the negative effect of lower volume and grades. Meanwhile, realized copper price was able 80
9-Aug-17 9-Sep-17 9-Oct-17 9-Nov-17
to increase by 28% to US$2.80/lb and was able to offset the decrease in volume.
PX PSEi

Estimates under review. In light with the underperformance during the quarter, we will be
reviewing our estimates for PX. Although regulatory issues have lightened up from MICCs
recommendation to lift the ban on open mining, the threat of an increased excise tax remain. We ABSOLUTE PERFORMANCE
currently have a HOLD rating for PX with a target price of Php10.1/sh. 1M 3M YTD
PX -5.45 -13.18 -11.16
FORECAST SUMMARY PSEi 2.16 7.04 24.96
Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E
Net revenues 10,048 8,525 9,378 10,389 10,389
% change y/y 2.5 (15.2) 10.0 10.8 -
EBITDA 3,324 2,770 3,661 4,426 4,628 MARKET DATA
% change y/y 14.1 (16.7) 32.2 20.9 4.6 Market Cap 37,744.65Mil
EBITDA margin (%) 33.1 32.5 39.0 42.6 44.5
Outstanding Shares 4,940.40Mil
EBIT 1,633 1,201 2,478 2,934 3,040
% change y/y 11.5 (26.5) 106.3 18.4 3.6 52 Wk Range 7.88 - 10.50
EBIT margin (%) 16.3 14.1 26.4 28.2 29.3 3Mo Ave Daily T/O 6.91Mil
Core income 1,122 905 1,657 2,082 2,157
% change y/y (25.6) (19.3) 83.0 25.7 3.6
Core margin (%) 11.2 10.6 17.7 20.0 20.8
Core EPS (Php) 0.23 0.18 0.34 0.42 0.44
% change y/y (25.7) (19.4) 83.0 25.7 3.6

RELATIVE VALUE
P/E (X) 33.6 41.7 22.8 18.1 17.5 KYLE JEMMRIC VELASCO
P/BV (X) 1.6 1.5 1.4 1.4 1.3 RESEARCH ANALYST
ROE (%) 4.9 3.8 6.5 7.7 7.6 kyle.velasco@colfinancial.com
Dividend yield (%) 1.0 0.3 0.4 1.1 1.4
so urce: P X, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

3Q17 earnings down 31.2% to Php384Mil

PXs core income in 3Q17 fell 31.2% to Php384Mil. This brought 9M17 core income to Php1.1Bil,
down 15% y/y. The results were significantly lower compared to COL and consensus forecasts at
only 54.4% and 60.5% of full year targets. Core earnings dropped mainly due to lower tonnage,
lower ore grades and higher non-cash charges during the quarter. 3Q17 revenues declined
by 16.9% y/y to Php2.4Bil as total tonnage fell by 15.2% y/y and ore grades deteriorated.
Meanwhile, non-cash costs such as depreciation increased by 9% to Php371Mil as a result of
higher costs of new draw points.

Exhibit 1: Results Summary

% of forecasts
in PhpMil 3Q16 3Q17 % Change 9M16 9M17 % Change
COL Consensus
Revenues 2,917 2,424 (16.9) 7,705 7,180 (6.8) 69.1 70.1
Operating income 864 568 (34.2) 1,979 1,629 (17.7) 55.5 53.8
Operating margin (%) 29.6 23.4 - 25.7 22.7 - - -
Core net income 558 384 (31.2) 1,332 1,132 (15.0) 54.4 60.5
Core margin (%) 19.1 15.8 - 17.3 15.8 - - -
source: PX, Bloomberg, COL estimates

Gold revenues down 28% y/y, while copper revenues

up 3.4% y/y

3Q17 revenues declined by 16.9% y/y to Php2.4Bil. This brought 9M17 revenues to Php7.2Bil,
down 6.8% y/y. This underperformed both COL and consensus estimates as the nine month
figure only accounted for 69.1% and 70.1% of full year forecasts, respectively. Broken down,
gold revenues declined due to lower ore grades and tonnage, while copper revenues slightly
increased as the drop in volume was more than offset by the higher realized prices.

PX was able to mine out only 2.12Mil tonnes of ore during 3Q17. This was 15.2% lower
compared to the 2.50Mil tonnes mined during the same period last year. The miner principally
attributed the low mine delivery to equipment availability issues, limited flexibility related
to ore handling, and persistent bouldery ore. Furthermore, ore grades declined during the
quarter. Gold grades dropped to 0.385 grams per tonne from 0.419 grams per tonne during
the same period last year. Meanwhile, copper grades deteriorated to 0.193% from 0.209% the
previous year.

In terms of price, realized gold price remained flat at US$1,272/oz. As such, price was not able
to offset the negative effect of lower volume and grades. Meanwhile, realized copper price was
able to increase by 28% to US$2.80/lb and was able to offset the decrease in volume.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

3Q17 operating margin shrinks on higher non-cash costs

PXs operating costs decreased by 8.0% y/y to Php1.7Bil. The drop in operating expenses
mainly resulted from the lower tonnage during the quarter. Despite the decline in expenses,
PXs operating margin dropped as the decline in expenses was slower compared to the decline
in revenues. Operating margins dropped by a total of 690 basis points to just 25.6% for the
quarter. The increase in non-cash expenses, notably depreciation, caused the slower decline in
operational cost. Depreciation expense saw an increase of 9% to Php371Mil during the quarter
as a result of higher costs of new draw points for the year.

To significantly benefit from lifting of the ban on open-pit

mining

On October 24, the multi-agency Mining Industry Coordinating Council (MICC) recommended
to lift the ban on prospective open pit mining. Lifting the ban would result in the continuation
of the development of prospective large mining projects previously banned by the regulator.
DENR Secretary Roy Cimatu noted that he would still need to consult his cabinet members
before reversing the order. The possible lifting of the ban also boosted sentiment for the
mining sector as it reduced potential risks facing mining companies.

One of the key risks that PX faced with the ban on open pit mining was the suspension of
its US$1.2Bil Silangan mine project. Note that the Silangan mine project accounts for
approximately 80% of PXs current value, as the miners only operational mine (Padcal mine) is
nearing the end of its mine life. With the possible lifting of the ban, the said project can once
again be developed.

Estimates under review

In light with the underperformance during the quarter, we will be reviewing our estimates for
PX. Although regulatory issues have lightened up from MICCs recommendation to lift the ban
on open mining, the threat of an increased excise tax remain. We currently have a HOLD rating
for PX with a target price of Php10.1/sh.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

Philex Mining INCOME STATEMENT (IN PHPMIL)

FY14 FY15 FY16 FY17E FY18E FY19E
Corporation (PX) Revenues 10,048 8,525 9,378 10,389 10,389 10,389
% Growth 2.5% -15.2% 10.0% 10.8% 0.0% 0.0%
COMPANY BACKGROUND EBITDA 3,324 2,770 3,661 4,426 4,628 4,433
% Growth 14.1% -16.7% 32.2% 20.9% 4.6% -4.2%
Philex Mining Corp. (PX) is a mining company
EBIT 1,633 1,201 2,478 2,934 3,040 2,457
engaged in the exploration, development,
% Growth 11.5% -26.5% 106.3% 18.4% 3.6% -19.2%
and production of metallic minerals and Core EPS 0.23 0.18 0.34 0.42 0.44 0.35
petroleum. Most of the companys revenues % Growth -25.7% -19.4% 83.0% 25.7% 3.6% -18.8%
come from the sale of copper and gold
concentrates. It currently operates the Padcal BALANCE SHEET (IN PHPMIL)
mine in Benguet, whose mine life is expected FY14 FY15 FY16 FY17E FY18E FY19E
to last until the year 2022. PX is currently Cash & Equivalents 5,232 1,009 1,985 2,117 3,549 3,493
Trade Receivables 1,056 897 990 1,082 1,082 1,082
engaged in exploration efforts in Padcal in
Inventories 1,858 1,887 1,756 1,786 1,755 1,923
order to extend its mine life. The company Other Current Assets 1,385 1,479 1,522 1,662 1,662 1,662
is also gearing up to develop the Silangan PPE 7,139 6,828 6,689 6,434 6,066 5,590
mine, which is expected to be the companys Other Non-Current Assets 27,971 31,450 32,995 34,559 36,139 36,139
next operating mine. The Silangan project is Total Assets 44,640 43,549 45,938 47,639 50,253 49,888
currently on hold due to regulatory issues Accounts Payable 1,796 1,448 1,371 1,404 1,382 1,502
ST Debts 4,308 3,318 3,318 3,318 3,318 3,318
Other Current Liabilities 1,419 949 949 949 949 949
REVENUE BREAKDOWN LT Debts 5,947 6,259 7,259 7,259 8,259 9,259
Other Non-Current Liabilities 4,128 4,291 4,291 4,291 4,291 4,291
0.8%
Total Liabilities 17,599 16,265 17,188 17,220 18,199 19,318
Total Equity 27,042 27,284 28,750 30,418 32,054 30,570
0.8%
Total Liabilities & Equity 44,640 43,549 45,938 47,639 50,253 49,888

41.2% CASHFLOW STATEMENT (IN PHPMIL)

41.2% FY14 FY15 FY16 FY17E FY18E FY19E
58.0% Net Income 1,054 1,142 2,306 2,975 3,081 2,501
58.0% Depreciation & Amortization 1,691 1,568 1,393 1,492 1,587 1,976
Other Non-Cash Exp (Gains) (413) (618) (692) (892) (924) (750)
Interest Expense (Income) 354 0 0 0 0 0
Decrease (Increase) in Working Cap (899) (626) (82) (229) 9 (48)
Operating Cash Flow 1,788 1,466 2,925 3,345 3,753 3,679
Gold Copper Silver Capex (2,354) (1,390) (1,500) (1,500) (1,500) (1,500)
Gold Copper Silver
Other Investments (3,108) (3,019) (1,300) (1,300) (1,300) 0
Investing Cash Flow (5,462) (4,408) (2,800) (2,800) (2,800) (1,500)
Proceeds (Payment) Debts (4,935) (4,192) 1,000 0 1,000 1,000
Payment of Cash Dividends (367) (108) (148) (413) (521) (3,235)
Others 10,127 3,016 0 0 0 0
Financing Cash Flow 4,825 (1,284) 852 (413) 479 (2,235)
Change in Cash 1,151 (4,227) 977 131 1,432 (56)

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

INVESTMENT THESIS: KEY RATIOS

FY14 FY15 FY16 FY17E FY18E FY19E
Regulatory issues continues to make the
EBITDA Margin (%) 33.1% 32.5% 39.0% 42.6% 44.5% 42.7%
industry bleak NPM (%) 11.2% 10.6% 17.7% 20.0% 20.8% 16.9%
DENR secretary, Gina Lopez announced the Current Ratio (X) 1.08 0.66 0.84 0.88 1.13 1.13
closure of 21 mining operations in several Days Receivable 38.35 38.43 38.00 38.00 38.00 38.00
areas in the country, noting that the mines Days Inventory 97.39 110.03 105.00 105.00 105.00 105.00
Days Payable 82.89 76.77 75.00 75.00 75.00 75.00
were ruining nearby watersheds. Afterwhich,
Asset T/O (%) 22.5% 19.6% 20.4% 21.8% 20.7% 20.8%
the secretary issued an order to cancel 75 ROAE (%) 4.4% 3.7% 6.5% 7.7% 7.6% 6.1%
mineral production sharing agreements
(MPSA) for mining sites that are near
watersheds, including PXs Silangan mine.
Although the commission on appointments
rejected the appointment of Gina Lopez as
the DENR secretary, the suspension on several
mines and the cancellation of MPSA remains
in effect. In addition, President Duterte
mentioned in his SONA last July that he would
impose more taxes on the mining industry.
With the said developments, the outlook of
the local mining industry remains cautious in
the foreseeable future.

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

Valuation RELATIVE VALUATION

Methodology 17E
P/E
18E 17E
EPS Growth
18E
Nickel Asia Corp. 15.1 12.4 78.4% 0.6%
Oceanagold Corp. 12.5 12.2 9.3% 3.2%
Atlas Consolidated Mining 22.7 29.4 n/a -22.7%
HudBay Minerals Inc. 18.5 11.2 n/a 65.1%
Zijin Mining Group Co Ltd 14.3 12.2 83.0% 17.0%
Minera Frisco SAB de CV 6.8 15.6 n/a n/a
Philex Mining Corp. 18.1 17.5 25.7% 3.6%
Median ex-PX 14.7 12.3 78.4% 3.2%

VALUATION ASSUMPTIONS

Risk premium 5.0%

Risk free rate 5.0%
Beta 1.30
Cost of equity 11.5%
Cost of debt 5.3%
Tax rate 30.0%
WACC 8.4%

Enterprise value 58,690

Less: (Net debt) / net cash -8,591
Equity value 50,098
Number of outstanding shares (Mil) 4,940
Equity value per share 10.10

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I PX: 3Q17 EARNINGS DOWN 31.2% ON LOWER VOLUME, HIGHER COSTS

THU 09 NOV 2017

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG

RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO

RESEARCH ANALYST RESEARCH ANALYST
kyle.velasco@colfinancial.com john.luciano@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
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WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7