Metals X Ltd (MLX.ASX, $0.25/sh, Mkt Cap $330m) – Leveraged to upside in the tin price. BUY PT $0.50
We continue to rate MLX as one of our key pick’s for 2012 given the stock’s leverage to a rising tin price through 2012 and 2013. We have seen the tin price recover by 30% from the lows of 4QCY11, with it now trading at US$23-25,000/t. We understand LME stocks are ranging between 5-10 days of supply, with the macro drivers including impacts from the Indonesian monsoon season (near term) and limited exports from the DRC (ongoing).
With MLX’s Renison project the only ASX exposure available to tin production for at least the next 2-3 years during times of strong tin prices, we feel the interest shown in recent weeks across the tin explorers is a positive for the sector but long dated in terms of exposure to production cash flows (not to mention grades below 1% Sn).
The Renison project is currently mining grades at 1.3-1.4% Sn and by April the extension of the North Renison decline will be complete and enable mining to commence in the upper zone of Area 4 where the Reserve grade is 2.5% Sn. Mining of the new zones will see tin metal production lift from ~1,200t in Q1 to 1,600t in Q3 to 1,800-2,000/t/qtr in 4Q. We forecast 8,000t of production FY13 delivering ~$55m EBITDA (assuming US$24,500/t Sn).
Another major catalyst for MLX is the process underway for potential JV financing and development partners into the Wingellina Nickel project. We understand a number of groups, including diversified mining houses and corporates (Samsung), are engaged at various levels of discussions with an outcome targeted in the coming months. We don’t feel the market attributes much value to such a world class asset, so a definitive announcement to come would be a major re-rating of the stock.
We continue to rate MLX with a BUY recommendation and a price target of A$0.50/share, which represents approximately 100% upside to the current share price.
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