From Stockh##d
Welcome to a new column with Nero Resource Fund founder and co-portfolio manager Rusty Delroy, a Cottesloe-based fund manager who has developed a reputation for taking the path less travelled in his investments.
Bullish comments on tin price if new mines are to be developed and then....
With that in mind, Delroy says Metals X is the best place on the ASX to find exposure to the price of the metal. Once a diversified miner with operations in gold, copper, tin and nickel, MLX has been simplified over the years and now counts half of the historic Renison Bell underground mine on Tassie’s west coast as its sole producing asset. The other half is owned by a subsidiary of the world’s top tin producer, China’s Yunnan Tin, with the mine producing a combined 2899t of tin in concentrate in the September quarter.“First world, long-standing operations, high grade and really solid margins at spot pricing,” Delroy said.
“They’ve got $200m in cash, a $200m EV (enterprise value) … they’re probably doing close to $25 million a quarter in an operating margin. That’s $100m per annum and they’ve got 10 years in reserves.“$100m per annum on a $200m EV, that’s pretty compelling. You’ve got free optionality with 50% of Rentails (a tailings retreatment project to produce tin from waste at the Renison Bell site), currency’s helping them, the Aussie’s coming back pretty solidly, the share buyback is supporting the stock and there’s potential to consolidate the ownership of the JV and other regional assets in Tasmania.“I don’t think you need to walk past it because it’s so compelling, and if you can find first-world assets I think you should hunt there first.
”In the developer and explorer space, Delroy says Stellar Resources (ASX:SRZ), where Nero holds a 15% stake, is a standout.Stellar owns the Heemskirk project, another Tasmanian deposit with a mineral resource estimate of 7.48Mt at 1.04% Sn for 77,870t of contained tin.SRZ says the project, 18km southwest of Renison and 10km east of the Avebury nickel mine, is the third highest grade that remains undeveloped globally.“It has a really high quality register – both Paradice and Regal are substantial there, it’s strategically located, it’s got a high grade reserve (and) we expect that will grow in both size and grade given the exploration success that continues,” Delroy said.Stellar has $10m cash in the bank to take it through a PFS and a $32m market cap.“There’s a high quality management team – Simon Taylor, Andrew Boyd and Mark Connolly, that’s the ex-Papillon team – you’ve got an already healthy scoping study, low capex of $70m doing just under 2000tpa of tin,” Delroy said.“The NPV was $150m at a US$30,000/t tin price, which is spot today, and the real key here is we think come the dropping of the PFS in the back half of the year we could see this project significantly improve.”He thinks the PFS, utilising ore sorting, could double throughput to 3500tpa.
“That would be very meaningful to a player like Metals X, that are doing 6000tpa today. That would up their attributable production by 50%,” Delroy noted. “Our view is that’s worth $100m plus to someone to take it out.”Also with Metals X as a potential acquirer, Delroy noted London-listed First Tin, which has projects in Germany and Australia and counts MLX as a ~30% holder as a tin explorer to watch.
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