Metals X Limited

MLX Details

Resignation of the CEO: Metals X Limited (ASX: MLX) is a tin producer in Australia that operates tin mines and explores and develops base metals projects. On 9 August 2021, MLX notified that Mr Michael Spreadborough has resigned from his position and will step down as the company’s CEO. The recent divestment of the nickel and copper assets has resulted in a change in the strategic direction of the MLX; hence, the company has decided not to replace the role at this time.

Substantial Shareholder Change: On 2 August 2021, Bank of America Corporation and its related entities increased their interest in MLX from 5.02% to 6.03% in the company.

Sales Update on Tin Concentrate: The company recently confirmed that its Malaysian Smelter Corporation (MSC) is now operational, and it has received the first of four outstanding provisional payments on 3 August 2021. The company will deliver new shipments of tin concentrate to MSC upon receiving the balance three payments. The project operations resumed earlier than expected in MLX’s estimated cash flow for the rest of 2021.

Q4FY21 Highlights:  MLX reported the following production, costs, and earnings, generated from the Renison Tin JV Operations in the June 2021 quarter.

• Production Growth: MLX reported 2,137 tonnes of tin-in-concentrate production in Q4FY21 versus 1,486 tonnes in Q3FY21. The higher production was due to improved mined grades and production output and better processing recoveries (77.9%).
• Lower AISC: The company reported an All-In Sustaining Costs (AISC) of $19,939/tonne of tin, down by 25% QoQ, due to the higher tin production in Q4FY21.
• Higher Earnings: The company posted a higher EBITDA of $20.7 million and a cashflow of $14.0 million in Q4FY21, versus $7.5 million of EBITDA and $0.3 million of cash flows, reported in Q3FY21.
• Debt Repayment: MLX repaid $15.5 million on 14 June 2021, thereby reducing 50% of the principal ($31 million) on the unsecured loan facility (Loan Facility) with Asia Cheer Trading Limited (ACT).
• Cash Balance: MLX held $13.4 million cash as of 30 June 2021.

Post-Quarter Repayment: MLX repaid $7.75 million to ACT under the loan facility on 13 July 2021 and now owes $7.75 million to the lender. The two companies also signed another agreement to extend the payment terms from 31 July 2021 to 31 January 2022.

Production from Q3FY21 to Q4FY21; (Analysis by Kalkine Group)

Key Risks:

• Commodity Price Fluctuations: The company faces the risk of a change in the prices of Tin and Nickel, which may impact the profitability and revenue for the given period.
• COVID-19 Impact: MLX witnessed the impact of COVID-19 on its Malaysian JV project, thereby impacting the operations of the Kuala Lumpur Tin Market (KLTM), existing contract terms and shipment delivery.

Outlook:

• The company expects 8,500 – 9,000 tonnes of tin-in-concentrate production at an AISC cost of $21,000 - $25,000/tonne tin in FY2022. MLX estimates $60 million of capital costs and $10 million of capital development and resource development drilling expenditure at the project.
• MLX expects the market outlook for the tin to remain strong for the rest of 2021.
• MLX is undertaking a Rentails Definitive Feasibility Study (Rentails DFS Update) at the Thermal Upgrade Project to execute a Final Investment Decision (FID) for the complete development of the Rentails Project in CY2023.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MLX gave a positive return of 213.95% in the past nine months and a positive return of 225.30% in the past year. The stock is currently trading close to its 52-weeks’ high level of $0.290. The stock of MLX has a support level of ~$0.250 and a resistance level of ~$0.340. The stock has been valued using an Enterprise Value to EBITDA multiple-based illustrative relative valuation method and have arrived at a target price with a correction of high single-digit (in % terms). The company might trade at a premium than its peers’ median, considering the increase in quarterly productions, lower AISC in Q4FY21, debt repayment of ACT, and the restoration of Renison project operations. For the purpose of valuation, we have taken peers like Fortescue Metals Group Limited (ASX: FMG), Sandfire Resources Limited (ASX: SFR), Sandfire Resources Limited (ASX: PRN) and others. Considering the current trading levels, significant returns in the past nine months and the past year, and valuation, we suggest investors book profit and give a ‘Sell’ rating on the stock at the market price of $0.280, as on 17 August 2021, 11 AM (GMT+10), Sydney, Eastern Australia.  

MLX Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.