Event: We initiate coverage on MLX with a BUY recommendation and a price target of A$0.50/share. Quarterly Update and Wingellina announcement.
Investment Thesis:
Operational improvements will reflect higher tin production in 2012: MLX has recently undergone a strategic review directed at improving production from the Renison tin mine. The review resulted in MLX ordering four new loaders, three extra trucks, one extra Jumbo and one extra charge machine that will replace some of the existing fleet to allow more throughput at the mill with the aim of increasing production and lowering cash costs. Additionally, an improved mine plan is being scheduled which will provide MLX flexibility in its operations and the ability to improve feed through higher grade ore sources.
Medium term tin is still in demand: Globally the tin market remains tight with a current forecast deficit of approximately 10,000t in 2011 and 2012. We see this as positive for MLX, and expect operational improvements will help increase margins and lower cash costs driven by higher ore throughput and higher average feed grade. If we throw in higher tin prices and extension of mine life at Renison we can see MLX’s tin projects shaping up to be a valuable income generator.
Extension of the mine life is real and achievable: MLX is part way through a 40,000m drill program at Renison to further upgrade and extend the current mine life. MLX objective is to achieve a Reserve life of seven years by June 2012. The current Resource is twelve years with a current Reserve life of four years at Renison.
Potential production increase through Rentails: MLX is looking at the application of new technology and tin fuming to treat over 19Mt of historic tailings currently onsite at the Renison project. The current Measured and Indicated resource is 18.95Mt at 0.44% tin and 0.21% copper which could potentially add a further 4.5-5.5Ktpa of tin metal into MLX’s production profile post 2013.
Wingellina Update: Jinchuan, will no longer be converting their shareholding in MLX for a 20% interest in the Wingelina project. MLX is now focused on progressing a deal with other international partners. Additionally, MLX has undertaken field work activities during the year and is progressing with environmental studies, while funding requirements ($2.23b) still pending.
Strategic investments: Management continue to hold a number of equity investments with the long term view of creating value for shareholders. In February 2011, MLX relinquished its holding in Jabiru (JML) to Independence Group (IGO) that gave MLX $55m for a 12 month investment. Total equity investment value is ~$67m including IGO (~$37m), WGR (~$18.6m), MUB (~$6.5m) and Aziana (~$5.1m). Cash on hand A$78m.
Recommendation: We initiate coverage on MLX with a BUY recommendation and a price target of A$0.50/share, which represents approximately 108% upside to the current share price. Our PT is derived using a Sum of parts valuation which includes an NPV on MLX’s tin assets (~10%), a risked EV/Resource metric for Wingellina and current market pricing for equity valuations.
MLX Price at posting:
23.5¢ Sentiment: Buy Disclosure: Held
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