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Unfashionable metals back in vogue
Trevor Hoey, July 30 2007

Excerpt:

Humble tin makes a charge

Metals X is also worth looking at. It is another company that is involved in the production of a less fashionable resource. Tin might not have the allure of uranium or nickel, but for Metal X it represents a very profitable resource in a supply constrained market where sharp increases in the price of the commodity appear to have gone unnoticed.

Since June 2006 the price of tin has nearly doubled, increasing from less than $US8000 per tonne to about $US15 500 per tonne. In the last month the price of tin has risen by more than 10 per cent, outpacing the more closely followed base metals such as nickel, copper and zinc. In fact as huge declines in overseas markets haunted investors on Friday, tin was the only bright spot. While nickel, copper, zinc, lead, aluminium, gold and silver all suffered declines, tin gained another 1.5 per cent.

P/E belies Metal X’s growth profile

Though Metals X’s share price has increased significantly in the last 6 months, it could be argued that the company remains undervalued. Metal X is forecast to deliver a net profit of $21.6 million in 2007-08, increasing by nearly 200 per cent to $63.9 million in 2008-09. This represents earnings per share of 6.1 cents, indicating that Metal X’s 2008-09 forecasts reflect a P/E ratio of 7.

These forecasts were released in June, and while it is from the most recent independent research available it was compiled prior to the recent spike in the price of tin. Furthermore, the forecasts are calculated using a long term tin price that is about 30 per cent below the current spot price.

Long-term earnings outlook

Metal X’s Renison and Mt Bischoff mines have a resource of about 6.6 million tonnes, but analysts believe that further underground mining at Renison could result in resource upgrades and potentially extend the company’s production capacity well beyond the eight years that is currently estimated.

In this regard it should be noted that Renison is the largest hard rock tin mine in the world, and based on current production estimates for 2009 Metal X is ranked the sixth largest tin producer in the world. Metal X also owns the Collingwood tin mine in North Queensland that has a smaller resource and a mine life of three to five years.

Nickel assets offer diversification

Metal X’s other assets include interests in nickel operations at Mt Keith, Kambalda and Kingston. These assets produce revenue in the form of royalties – related earnings are expected to be in the vicinity of $8 million for the six months to June 2007. But in terms of Metal X’s nickel interests, its Wingellina resource that has 2 million tonnes of contained nickel is where the blue sky lies.

In May 2007 China’s largest nickel producer, Jinchuan Group made an investment of nearly $33 million in Metal X, making it the largest shareholder with a stake of about 13 per cent. The funds will be used to assist in progressing the Wingellina project and Jinchuan has the right to negotiate an offtake arrangement. Analysts estimate that the Wingellina resource could support a strong level of production over a period of 25 years.