Company Overview:  Metals X Limited is a diversified resource company engaged in developing and exploring for minerals and metals in Australia. The Company produces tin, copper and nickel. Metals X is 100% owner of the Nifty Copper Operations (Nifty), located in the East Pilbara region of Western Australia. Nifty comprises an historical open pit oxide mine and an underground sulphide mine. The Company is a significant tin producer through its 50% ownership of the Bluestone Mines Tasmania Joint Venture. The key assets of the joint venture are the Renison Tin Mine, a 700,000 ton per annum tin concentrator plant, and the Renison Expansion Project. The Company’s nickel division consists of its 100% ownership of nickel assets in the Central Musgrave Project (CMP) located in the Central Musgrave Ranges. The CMP project encompasses 1,957 square kilometers of prospective exploration tenure that includes the Wingellina nickel deposit, the Claude Hills nickel deposit, and the Mt Davies exploration prospects.
 

MLX Details

MLX Witnessed Significant Transformation in FY19: Metals X Limited (ASX: MLX) is a small-cap diversified base metal company with the market capitalisation of circa $144.7 Mn as of 13 September 2019. It is primarily engaged in the (1) operation of tin and copper mines in Australia, and (2) exploration and development of base metals projects in Australia. The Group had 467 employees as of 30 June 2019. MLX’s top-line grew at a CAGR of ~41.7% over the period of FY16-FY19. Recently, the company reported its financial results for the year ended June 30, 2019 wherein it stated that FY19 was a period of significant transformation for the company. While the Renison Tin Operations continued to perform strongly, Nifty Copper Operations has been witnessing a significant change to deliver the long-term profitable mining operation over the span of 12-24 months. The company’s earnings before interest tax depreciation and amortisation (or EBITDA) for Renison Tin Operations amounted to $21.5 million as compared to FY18 figure of $36.5 million. It was added that the total sales revenue for Renison was higher than the prior year because of an increase in production and tin prices. The capital re-investment was higher as compared to the previous period mainly because of the expenditure towards upgrading and refurbishing infrastructure and additional capital development which was undertaken in order to develop new mining areas outside of Central Zone at Nifty. There are expectations that these developments might support the company in achieving long-term growth objectives.

The company’s key personnel have stated that while not necessarily reflected in financial results of the company, there has been significant progress with respect to reducing the costs, improving the efficiency and resolving a number of legacy issues. Additionally, it looks like that the company’s balance sheet is less leveraged as compared to the broader industry, which might act as a tailwind moving forward.


Key Financial Details (Source: Company Reports)

Top 10 Shareholders: The following table provides a broader overview of the top 10 shareholders in Metals X Limited:

Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: The current ratio of Metals X Limited stood at 1.99x in FY19, which is slightly higher than the industry median of 1.75x and, thus, it can be said that MLX is in a decent position to meet its short-term obligations. Additionally, it looks like the company could also make deployments towards the key strategic activities which could help in the long-term growth. The company’s Debt/Equity ratio stood at 0.09x in FY 2019, which is lower than the industry median of 0.11x and, thus, it can be said that MLX’s balance sheet is less leveraged than the broader industry median. Generally, the lower debt on the balance sheet reflects stability which could help the company in witnessing decent growth levels. The company’s percentage of long-term debt to total capital stood at 3.9% in FY19, which is lower than the industry median of 6% and, therefore, it looks like that the company’s exposure towards the long-term debt has been reduced.


Key Metrics (Source: Thomson Reuters)

Key Takeaways from September 2019 Corporate Presentation: The company has recently released the investor update presentation in which it provided some crucial information about Renison Tin operations and significant opportunities to expand the production levels. It stated that Area 5 would be providing an increase in the mine grades and recovery opportunities are being progressively implemented.The key focus areas for FY20 revolves around optimising Mine Schedule to increase the Mine Grades, increasing the mine production and metallurgical improvement program. With respect to Nifty copper operations, the company’s focus is now on developing the “New Nifty.” It was added that all key pieces are in place and increasing developed stocks would be leading to increased production.
 

Renison Tin Operations (Source: Company Reports)

Update On The Shareholder Notice: With respect to the announcement related to the pending resignation of the Chairman named Mr Peter Newton at upcoming AGM, it stated that the company would be putting the remaining resolution the subject to notice to the shareholders at AGM, being APAC’s proposed resolution for appointment of the one new director (Mr Brett Smith).

In the release, it stated that the announced process to refresh the company’s Board in the interests of all the shareholders has commenced, and it is ongoing. While this progress, MLX continues to focus on substantial opportunities at Renison Tin Operation and the execution of Nifty Reset Plan.

A Recent Update on Renison Tin Operations: Metals X Limited has recently provided an update on the Renison Tin Operations in Tasmania. In the release, it was stated that the focus towards the safety systems and leadership has started to deliver the positive results. These operations also witnessed increased mill throughput capacity by 24%, and there was also an increase in mill feed grade by 22% with the successful construction and commissioning of the ore sorters. The Managing Director named Mr Damien Marantelli has stated that the importance of tin in the emerging technologies, including the potential to extend the life of the rechargeable batteries, provides significant demand upside as a growth of these applications continues. The company continues to work at the pace to realise substantial growth opportunities at the Renison to benefit from the global growth in emerging technologies.

Removal From S&P/ASX 300 Index: S&P Dow Jones Indices made an announcement about the changes in S&P/ASX indices, which would be effective at open of trading on September 23, 2019. As per the release, Metals X Limited has been removed from the S&P/ASX 300 index.

Update on Nifty Copper Operations: In the release dated September 4, 2019, the company’s Managing Director stated that after the several months into the rebuild of Nifty operation, the company is starting to witness real momentum growing. The significant benefits have been flowing through in terms of the improved planning, ownership of outcomes, operational efficiency as well as the pace and rigour with which the operational changes are implemented. The company’s Managing Director also added that the Citibank Loan Facility, which has been announced earlier, provides support to the Nifty.

In the release, it mentioned that the focus towards the culture and safety has been the key driver of the improved performance, alignment, ownership and engagement. Resultantly, Nifty is over 150 days free of the Lost Time Injury. The Nifty outlook happens to be positive, and the company is maintaining the stated goal of building to 2Mtpa mining rates during the quarter ended March 2020.

What To Expect From MLX Moving Forward: On August 7, 2018, the company wrapped up the capital raising amounting to $50,000,000 (before costs) by the issuance of 76,923,076 fully paid ordinary shares involving an issue price of $0.65 per share to the institutional and professional investors. There are expectations that the consolidated entity would continue the exploration, mining, processing, production and marketing of the tin and copper concentrates in Australia, and it would continue the development of the nickel exploration projects. Coming to the outlook of Nifty, it stated that the Mine output would be flat for the September quarter 2019, and there might be improvement commencing in December quarter 2019. The working capital cycle range at Nifty happens to be between A$0 million- A$25 million. The following picture has been extracted from the investor update presentation:


Nifty Copper Operations (Source: Company Reports)

With respect to Renison Tin Operations, it mentioned that there is a focus towards increased mine production and tin recovery. There is a continued emphasis towards the safety improvements with the focus on leadership engagement and the company is working towards a sustainable increase in the mine production with a target of 1Mtpa. The company’s release also added that they are accelerating the surface exploration activities in search for the new mining opportunities.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
Method 1: PE- based Valuation

 PE- Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Method 2: Price to Cash Flow based Valuation

Price to Cash Flow based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.

Stock Recommendation: The stock price of Metals X Limited has witnessed a fall of 20.75% in the span of previous six months, and in the time frame of past three months, the stock has fallen 12.50%. Currently, the company’s stock price is trading towards its 52-week lower levels of $0.140, proffering a decent opportunity for accumulation. The company’s Managing Director reflected favourable viewpoints and stated that they continue strongly towards the goal of turning around the financial performance of MLX. Additionally, Renison Tin Operations has been performing well. Considering the completion of investment in a new crushing circuit, outstanding geological drilling results in Area 5, Leatherwood and Bell 50 and increased overall Ore Reserves, it looks like that the future of the operation is positive. Based on the foregoing, we have valued the stock using two relative valuation methods, i.e., Price/Earnings multiple and Price/Cash Flow multiple and have arrived at a target price upside of lower double-digit growth (in % terms). Hence, in view of aforesaid facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current price of A$0.225 per share (up 7.143% on 13 September 2019).

 
MLX Daily Technical Chart (Source: Thomson Reuters)

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