Metals X Limited

MLX Details

New Loan Facility Agreement: Metals X Limited (ASX: MLX) is primarily engaged in the operation of tin and copper mines in Australia. The company recently announced that it has entered into an unsecured loan facility agreement with Asia Cheer Trading Limited. Funds from the facility will be utilised for the repayment of the amount outstanding pursuant to the facility agreement dated 29 August 2019 with Citibank N.A. Notably, the company agreed to pay the principal outstanding of $30.5 million plus accrued interest under the Facility Agreement with Citibank and the close-out of existing hedging contracts on or before 3 September 2020, to cure the financial covenant breaches. The principal amount of the ACT Facility stands at $26,000,000 with a loan term until 31^st January 2021. Key terms under the facility include payment of net proceeds from the sale of copper assets or any capital raising undertaken during the loan term, to the lender in the permanent reduction of the principal amount.

June Quarter Highlights: During the quarter ended 30^th June 2020, the company produced 1,733 tonnes of tin-in-concentrate ringing the FY20 production in line with guidance at 7,181 tonnes. The tin division reported quarterly EBITDA and net cash outflow of $4.15 million and $1 million, respectively, with MLX’s having a 50% share in the earnings and cashflow. An open pit Scoping Study at the Nifty Copper Operation reported at 10-year open pit life, producing 250,000 - 270,000 tonnes of copper-in-concentrate at an AISC of approximately $5,400 - $5,800 per tonne.

Tin Operation Results (Source: Company Reports)

Outlook & Guidance: For FY20-21, the company expects to produce 8,200 - 8,700 tonnes of tin-in-concentrate at an all-in sustaining cost (AISC) of $19,000 - $20,000/tonne. The company completed the Area 5 Mining Optimisation Study and updated Life of Mine Plan, that resulted in a 10-year mine life and increasing annual production to over 10,000 tonnes of tin per annum from FY25. Under the Nickel Division, the company commenced a strategic review of the Wingellina Project.

Key Risks: The company is exposed to the risk of changes in market interest rates on account of its trade receivables carried at fair value through P&L cash balances. The company is exposed to credit risk, with significant concentrations in relation to cash and cash equivalents with Australian banks. The company is also affected by movements in the US$/A$ exchange rates due to the denomination of tin and copper concentrate sales receipts in US$.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company corrected by 1.20% in the last one month and is currently inclined towards its 52-week low of $0.043. At the end of the June quarter, the company reported closing cash and working capital of $16.4 million including $14.3 million cash. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Considering the trading levels, valuation, and growth prospects, we give a “Speculative Buy” rating on the stock at the current market price of $0.083, up 1.22% on 28^th July 2020.

MLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Marmota Limited

MEU Details

Commencement of Drilling at Aurora Tank: Marmots Limited (ASX: MEU) is a South Australian mining exploration company, focused on gold, copper and uranium. The company recently commenced drilling at Aurora Tank, which is expected to last for ~3 to 4 weeks. The Reverse Circulation (RC) drilling program includes ~85 holes with a total depth of ~7,500 meters. This represents the company’s largest-ever RC drill program at Aurora Tank, with a special focus on primary mineralisation extensions. The company has recently completed an equity placement to sophisticated and professional investors, raising $6.5 million at 5.3 cents per share. Proceeds from the placement will be primarily used to accelerate the development of the Aurora Tank gold discovery and a potential acquisition of neighbouring tenements. As on 31^st March 2020, the company had cash and cash equivalents amounting to $2.765 million.

Cash Flows (Source: Company Reports)

JMEI Tax Credits: The company was recently allotted $1,172,860 in JMEI tax credits for the 2020/2021 financial year and is planning to distribute the credits to eligible investors at a tax offset. The tax credits are applicable to new ordinary shares issued between 9^th July 2020 and 30^th June 2021.

Potential Strategic Acquisition: The company is planning to increase its land holding of 6,000 km² and has made an offer to acquire neighbour Tyranna’s Jumbuck project for $1.3 million. Shareholder voting on the acquisition is expected to take place on 31^st July 2020.

Grant from SA Government: In June 2020, the company updated that it has been awarded of $225k grant from the South Australian Government under the Accelerated Discovery Initiative, which is designed to encourage innovation in exploration and acceleration of mineral discovery through exploration and research projects in frontier terrains.

Review of Uranium Assets: The company has a substantial Uranium JORC Inferred Resource at its 100% owned Junction Dam and has started a strategic review of the assets. Such initiatives are expected to offer growth prospects as the sentiment in the uranium sector has improved, with uranium prices rising significantly for the first time in many years.

Key Risks: The potential quantity and grade mentioned in the exploration targets are conceptual in nature and require considerable future exploration before any Identified Mineral Resource can be reported. Therefore, the company faces uncertainty with respect to the Mineral Resource estimate after further exploration is carried out. Other risks to the business involve liquidity risk, credit risk and interest rate risk.

Stock Recommendation: The stock of the company has given positive returns of 67.65% and 78.13% in the last three and six months, respectively. Currently, the stock is inclined towards its 52-week high of $0.068. On a trailing twelve months (TTM) basis, the stock has a price to book value multiple of 6.2x, higher than the industry average (Metals & Mining) of 5.5x. Considering the recent price movements and current trading levels, we presume that most of the positives have been discounted in the current market price. Hence, we have a wait and watch stance on the stock at the current market price of $0.056, down 1.754% on 28^th July 2020.

MEU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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