Company Overview: Metals X Limited (ASX: MLX) is an Australian base metals producer with two high quality and long-life operations and a global scale development project- tin producer through its 50%-owned Tasmanian joint arrangement and a well-established copper and nickel-cobalt development project. The Consolidated Entity is divided into the segments namely- Renison Tin Operations, Mt Bischoff Tin Project, Wingellina Nickel Project, Nifty Copper Operations and Maroochydore Copper Project. Renison Tin Operations is engaged in the mining, treatment, and marketing of tin concentrate; Mt Bischoff Tin Project is a tin project; Wingellina Nickel Project explores and develops of nickel assets, Nifty Copper Operations is engaged in mining, treatment, and marketing of copper concentrate whereas Maroochydore Copper Project explores and develops of copper assets.
MLX Details
Decent Operational and Financial Performance: Metals X Limited (ASX: MLX) is a base metals producer, which is engaged in the operation of tin and copper mines in Australia and exploration and development of base metals projects in Australia. As on 20 November 2020, the market capitalization of the company stood at ~$77.11 million. The assets of MLX are of high quality with long life but is dependent on growth in electric vehicles and utility scale battery storage systems.. FY20 was a period of transformation for the company, wherein it reported a substantial rise in ore reserves at its 50% owned Renison Tin operation. MLX is focused on operational and financial discipline and is likely to witness a decent demand for portfolio metals.
During FY20, the company reported a revenue of $73.24 million from its Tin Division- Renison Tin Operations and reported a decline in cost of sales to $70.32 million from $78.58 million in FY19. During the year, the company produced 3,591t of tin at a C1 cash cost of $56.47 million, and AISC of $60.03 million and sold 3,412t at a realized price of $21,466/t. With respect to its copper division, MLX reported revenue of $70.20 million and cost of sales of $95.84 million. The company, however, suspended its mining operations at Nifty and subsequently placed the mine into care and maintenance. On the financial front, the group reported a decline in its revenue to $143.44 million in FY20 from $204.72 million in FY19. However, decent cost management and prudent steps resulted in a fall in a loss in continuing operations to $80.34 million from $116.96 million in FY19.
MLX has the potential to extend mine life with exploration targets and is moving forward with a commitment to clean mining. The onset of the COVID-19 pandemic was rapid on an operational front. However, the company took immediate actions to protect the integrity of its business interests and reported a minimal impact on costs of less than 1%. The company is now more focused on reducing costs to enhance its operating margins. It is determining a mining plan and infrastructure requirements for the same.
FY20 Financial Highlights (Source: Company Reports)
Details of Top 10 Shareholders: The following table provides an overview of the top 10 shareholders of Metals X Limited. APAC Resources Ltd is the largest shareholder in the company, with a percentage holding of 14.4%.
Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)
Key Margins: During FY20, net margin of the company witnessed a slight improvement on its previous year. In the same time span, the company reported a current ratio of 0.97x as compared to the industry median of 1.64x. At the end of the same period, MLX reported assets/equity ratio of 2.90x, higher than the industry median of 1.78x and debt/equity ratio of 0.69x relative to the industry median of 0.21x.
Key Margins (Source: Refinitiv, Thomson Reuters)
Quarterly Highlights (For the Period Ended 30 September 2020): During the quarter ended 30 September 2020, the company fully repaid its Citibank N.A. loan balance of $30.5 million. The company also entered a formal $32 million Farm-in and Joint Venture Term Sheet with IGO with respect to its Paterson Exploration Project. MLX remains committed to providing a safe and healthy workplace and reported a Total Recordable Injury Frequency Rate (TRIFR) for Renison of 16.6. In conjunction with the optimization study of Area 5, the company initiated the execution phase in July 2020 to develop and mine the high-grade Area 5 ore reserve. During the quarter, the company also announced its intention for the proposed sale of its entire copper asset portfolio.
On the operational front, the company reported record production of 2,326 tonnes at its tin division. This was primarily driven by a higher grade of ore mined, progress on the development and stoping into the high grade area, increased recovery of the metallurgical improvement program and realization of the higher grade feed. In the same time span, the company reported a decline of 10% in AISC to $15,189 per tonne, driven by the increased tin production for the quarter. EBITDA and cash flow for its Renison Operations for the quarter improved to $10.3 million and $7.0 million, respectively.
Performance of the Tin Division (Source: Company Reports)
Key Risks: The company is exposed to a variety of risks and uncertainties, including the risks associated with the estimate of mineral resources, fluctuation in metal prices, changes in the capital and operating costs, changes in project parameters with the continued evaluation of the plans, the continued availability of capital, general economic, market or business conditions.
Outlook and Guidance: The Renison strategy is focused on converting in-mine exploration success into a substantial long-life mining operation and on delivering higher cash margins through an increased mining rate, grade, and recovery. The company is also seeking productivity improvements and reduce costs. MLX is expecting improved cash flow in the coming periods as the grade of mined ore increases with a resultant lift in tin production. The company will continue its exploration, mining, processing, production, and marketing of tin, and will seek the sale of its copper assets. The company has provided guidance for FY21 and expects production in the range of 8,200 - 8,700 tonnes of tin-in-concentrate at an ASIC cost in between $19,000 - $20,000/tonne Sn. The company is likely to report a project capital in the range of $20 - $25 million.
Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The company is focused on maintaining a financial and operational discipline and intends to deliver higher shareholder value in the long term. The rapidly evolving battery industry is likely to drive future tin demand. As per ASX, the stock of MLX is trading close to its 52-weeks’ low levels of $0.043, proffering a decent opportunity for investors to enter the market. The stock of MLX gave a return of 1.2% in the past three months and a return of 2.4% in the last one month. On a technical front, the stock of MLX has a support level of ~$0.043 and a resistance level of ~$0.183. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target price offering an upside of lower double-digit (in % terms). Considering the current trading levels, record tin production, higher expected demand from rapidly evolving battery industry, and modest long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.084, down by 1.177% on 20 November 2020.
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MLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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