Metals X Ltd (MLX.ASX, $0.23/sh, Mkt Cap $298m, BUY, PT $0.50/sh) – Tin price bounces 11% YTD with expectations of a bumper price in 2012
With the tin price outperforming the group of LME metals so far in 2012 with a jump >10% to $21,822 (vs its performance as one of the worst performers in the 2H 2011) we continue to push MLX as the only ASX-listed tin producer along with the Renison tin mine being the largest and highest grade resource in Australia. The Renison tin mine currently produces ~2.5% of the world’s global tin supply.
Demand in electronics continues to drive tin consumption with LME stockpiles at a 30mth low. The supply/demand dynamics remain favourable for tin with the outlook to remain tight in China despite overall base metals outlook uncertainty occurring in late 2011. Significant constraints in world tin supply as well as cost pressures with Indonesian producers limited production output in 2011 with consensus forecasts for a supply deficit in 2012. Bloomberg consensus indicates the 2012 forecast price for tin rising to $26,000/t (~20% increase). FSB average tin price for the next 4yrs remains above $27,000/t.
Operational improvements will reflect higher tin production in 2012. Benefiting from 12-18mths of extensive mine development and the delivery of new mining equipment, MLX will commence mining Area 4 delivering an uplift in head grade (~1.8% Sn) which will automatically increase production to 8,000tpa and reduce costs to $12,000/t (vs 6,000tpa production & $16,000/t costs currently). We expect this will deliver EBITDA of ~$50m at current spot prices.
Renison exploration success to extend mine life and higher grades. Recent exploration at Renison has discovered further high grade tin and copper intercepts. We expect a reserve upgrade in 1QCY12 to increase Reserve life to 7years from 4 currently as well as extend the resource beyond the current 12 years.
Decision on Rentails expansion project will add 4-5Ktpa tin production. We expect the Renison expansion (Rentails) could potentially add a further 4.5 – 5.5Ktpa of tin metal into MLX’s production profile post 2013. With a decision by MLX to come by mid 2012 to proceed with expansion to be funded through cash reserves.
Deal on Wingellina getting closer. MLX has previously disclosed preliminary discussions have commenced with a number of international groups, including the likes of Samsung Corp. Potential for a deal to crystallise a portion of the asset’s multi-billion value will be a significant boost to MLX shareholders given the market attributes little to no value of the Wingellina asset today (we value at $240m or $0.18/sh on a EV/lb risk weighted basis). Management are confident of progressing a deal in the near term which could be a significant catalyst for the stock to r-rate.
We maintain our BUY recommendation with a PT of $0.50/sh providing 117% upside to yesterday's closing price. MLX has a strong cash balance of ~$80m, ZERO DEBT & ~$60m of listed investments.
MLX Price at posting:
23.0¢ Sentiment: Buy Disclosure: Held
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