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

Diversified Business Model to Support Overall Business Performance: Metals X Limited (ASX: MLX) is primarily involved in the operations of tin and copper mines in Australia. As on December 13, 2019, the market capitalization of MLX stood at ~A$88 million. The company is also engaged in the exploration and development of base metals projects in Australia. During the period of FY16-FY19, the company reported a compound annual growth rate of 41.66% in revenue. It was mainly supported by its diversified business model, which helped the company in strengthening its revenue base over the said period. It has reduced its total debt by 9.8% to A$9.4 million in FY19 on a YoY basis. There are expectations that the lower debt might help the company in witnessing decent growth levels and can also further stabilize the balance sheet. Moreover, MLX has witnessed a rise of 21.0% in total receivables, which amounted to A$16.5 million in FY19 as compared to A$13.7 million in FY18. It can be said that the cash levels of the company might witness a rise in the upcoming years and this could help the company in gaining decent levels of growth as it could make deployments towards growth objectives. Also, this may provide the company with a strength in order to gain strong traction among its industry peers.

Recently, the company delivered its quarterly result for Q1FY20, wherein it reported closing cash and working capital balance of $63.21 million, up $5.3 million on the previous quarter. Also, MLX has established loan facility of A$35 million with Citibank. During the quarter, the company completed capital raising of A$32.7 million, which comprises institutional placement and fully underwritten accelerated non-renounceable entitlement offer. The company experienced a strong support from numerous high-quality existing and new institutional investors. The company has settled retail component amounting to A$8.1 million of the entitlement offer after the completion of the quarter, which is not reflected in closing cash and working capital balances.

The company has a decent long-term outlook backed by high quality and long-life assets, favorable growth in electric vehicles and utility scale battery storage systems, decent cash position with lower debt, expanding resources & reserves, prudent investment in infrastructure, and focus on reducing operating costs.
 

Key Numbers (Source: Company Reports)

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

Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: Current ratio of the company stood at 1.99x in FY19 as compared to the industry median of 1.75x. This reflects that the company is in a decent position to address short-term obligations as compared to the broader industry. Debt to Equity stood at 0.09x in FY19 against the industry median of 0.13x. This reflects that the company’s balance sheet has been deleveraged in FY19 as compared to the previous year. Asset turnover ratio of the company stood at 0.91x in comparison to the industry median of 0.58x.


Key Metrics (Source: Thomson Reuters)

Performance of Tin Division During September 2019 Quarter: The company stated that it has 50% equity interest in the Renison Tin Operations in Tasmania via its 50% stake in the Bluestone Mines Tasmania Joint Venture. It added that Renison Tin Operations happens to be world-class, long-life, high margin underground mining operation, which is delivering responsibly-sourced Tasmanian tin concentrate into the global market. Despite the fall in tin price for Q1 FY20, the margin of realised sales price over AISC was 40% for the quarter because of decrease in all-in-sustaining cost for the September 2019 quarter. Notably, Tin price averaged at $24,871/t Sn for September 2019 quarter. Total production of Tin stood at 2,056 tonnes in concentrate as compared to the previous quarter production of 1,649 tonnes.

For the period, ore mined was 2% higher in comparison to the previous quarter at 217,110 tonnes. In addition, grade of ore mined was higher at 1.36% Sn as compared to the prior quarter of 1.11% Sn, because of high grades from, (1) development ore in Area 5, (2) development and stoping in the Leatherwood area and Central Federal Bassett stopes. For Renison Tin Operations, EBITDA and net cash flow (MLX 50% share) for the quarter amounted to $9.3 million and $5.5 million, respectively. Irrespective of the recent market volatility, robustness of economics of Renison throughout the past 12 months has been shown in the image below, and, it can be seen that, rolling 12-month AISC is well below even the recent market lows:


12-Month A$ Tin Price Chart Relative to Renison Rolling 12-Month All-In Sustaining Cost (Source: Company Reports)

Progress in Nifty Copper Operations: Metals X Limited happens to be a 100% owner of Nifty Copper Operations, which is located in the East Pilbara region of WA. On the operational front, substantial progress has been made with respect to progressing Nifty Copper Operations toward the Phase 1 goal of becoming a 2 million tonne per annum operation, since the announcement of the Nifty Reset Plan in May 2019. This progress has been supported by key lead indicators, which are (1) confidence in the resources and reserves, (2) development of mining stocks, (3) progress on resolution of ventilation issues and, (4) resolution of paste delivery systems.

For the copper division, the focus for September 2019 quarter continued to be on accelerating mine development, bedding down the new mining operations team, implementing new daily and weekly planning systems, improving secondary ventilation and commissioning the dry tailings paste fill system. On the production front, Nifty Copper operations remain ahead of planned budget for development in Q1 FY20, where it achieved a total of 1,862 metres against planned 1,736 metres. Ore mined for the period stood at 245,523 tonnes at a grade of 1.25% Cu. Nifty witnessed lower grade because of stoping within the central mining zone to compensate for delays in bringing the western stopes on line.

FY19 Financial Highlights: For FY19, the company reported earnings before interest tax depreciation and amortisation for the Renison Tin Operations of $21.5 million. Revenue was higher in comparison to the prior year because of rise in production and prices of tin, however this was offset by increased operating costs, which was associated with the new crushing plant and ore sorter, drawdown of the large low grade ore stockpile developed in the prior period as feed for the ore sorter and inventory write-downs to net realisable value. For the full year ended 30^th June 2019, the cash flows used in the investing activities stood at $46,309,541, which was higher than FY18. This increase was largely due to capital expenditure at Nifty. However, this was offset by the sale of shares investments for net proceeds of $4,542,993. The expenditure of Copper Division for the period stood at $40,498,845, as compared to $14,919,739 of FY18, reflecting higher expenditure because of expenses on upgrading and refurbishing infrastructure and additional capital development being undertaken to develop new mining areas outside of the Central Zone.


Financial Performance for FY19 (Source: Company Reports)

Changes in Board: The company recently announced resignation and appointment to the Board through a release dated 3^rd December 2019 and stated that the Chairman of the company, Mr Simon Heggen, has stepped down as the Director, which became effective on 2^nd December 2019. Also, Mr Damien Marantelli, Managing Director, has resigned as the Director of the company but would remain for a period of transition as Chief Executive Officer reporting to the Board. The company also announced that it has appointed Mr Brett Smith as a Non-Executive Director of MLX.  Mr Smith was proposed as the Director by APAC Resources Limited, which is an around 15% shareholder of the company.

What to Expect: The company is anticipating that it would continue its exploration, mining, processing, production and marketing of tin and copper concentrates in Australia and would continue the development of its nickel exploration projects. With respect to Rension Tin Operations, the key focus areas for FY20 revolve around (1) Optimising the mine schedule to increase the mine grades where the company has continued its focus on resource definition drilling at high grade targets, which include Bell 50 & Leatherwood. (2) Increasing Mine Production, wherein the new crushing plant has increased throughput capacity because of rejection of low-grade ore through the ore sorter. The company is also aiming an increase in mining rates to around 1Mtpa in order to optimise ore sorter tin recovery as well as mass rejection. 

The company has completed its review via Metallurgical Improvement Program and identified numerous opportunities to increase throughput, recovery and concentrate quality. Besides this, with the recent rise in nickel and cobalt prices, MLX is focusing on discussions with potential strategic partners who might be interested in developing Wingellina.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology:

EV/Sales Valuation Multiple


EV/Sales Valuation Multiple (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation: The company is investing in new infrastructure east and west of the historic Central Mining Area. With respect to Nifty Copper operations, the company has identified cost reduction opportunities throughout the site, and it is in progress and experienced improvements in fleet efficiency. The company also stated that the workforce is fully engaged and committed to delivering the reset plan. For the Tin Division, the company is focused on increasing production as well as reducing costs while maintaining a 7-year mine life. MLX is in a unique position as it is the only significant tin producer, which is listed on the ASX and the company remains as one of few publicly listed tin producers in the western world. As per ASX, MLX’s share price fell by 58.33% in the past six months, while it posted a negative return of 74.68% in the span of one year. Currently, the stock is trading towards its 52-week low level of $0.096, proffering an opportunity for share accumulation. Based on the foregoing, we have applied a relative valuation method, i.e., EV/Sales multiple, and arrived at a target price of double-digit growth (in percentage terms). Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.105 (up 8.247% on 13 December 2019).

 
MLX Daily Technical Chart (Source: Thomson Reuters)

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