Metals X Limited

MLX Details

Divesting Nickel Asset Portfolio: Metals X Limited (ASX: MLX) is a tin producer in Australia. The company is principally engaged in the operation of tin mines, exploration and development of base metals projects. MLX has signed term sheets with NICO Resources Limited (NICO) to sell off its Nickel asset portfolio in Australia. MLX is planning to sell shares in Metals Exploration Pty Ltd to NICO with MLX shareholders to receive direct holding in NICO shares. For the purpose, NICO proposes an IPO to raise $8mn by issuing 20mn shares at $0.20 per share to MLX and 20mn shares at $0.20 per share for the IPO. NICO would purchase the nickel assets from MLX for $5mn by issuing 25mn shares at a price of $0.20 per share and 25mn options to subscribe for shares in NICO, exercisable at $0.25 each (expiring 3 years after grant).

3QFY21 Activities: The company has registered a decline in ore mined to 173,940t ore in 3QFY21 against 214,540t ore in 2QFY21. The rate of recovery declined to 75.7% Sn in 3QFY21 against 76.9% Sn in 2QFY21. The company has sold 1,277 t Sn of tin in 3QFY21 at a price of $34,489/t Sn. The company has generated a revenue of $46.64mn in 3QFY21 against $47mn in 2QFY21. The revenue in Q3FY21 is approximately equivalent to the revenue level of H1FY21, indicating a robust growth in FY21. The company has registered an EBITDA of $7.57mn (MLX Share) in 3QFY21 against $8.11mn in 2QFY21. 

3QFY21 Activities (Source: Company Reports)

Key Risks: The company deals with commodities such as Nickel and Tin. Thus, any fluctuation in the prices of a related commodity may impact the financials of the company. The company deals with multiple currencies. Thus, any adverse fluctuation in foreign exchange prices may impact the financials of the company.

Outlook: MLX continues to execute strategic initiatives with divestment in Nickel asset portfolio. MLX is progressing with reducing its operational costs in line with the sale of its copper division to CYM which was completed on 30 March 2021. The total savings for FY21 is likely to be approximately $1.5mn. For FY21, the company expects production to be in the range of 7,800 - 8,200 tonnes of tin-in-concentrate at an AISC cost of $19,000 - $21,000/tonne tin.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 return of ~8.69% in the last one month and a return of ~197.61% in the last six months. The current market capitalisation of MLX stands at ~$222.28mn as of 25 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.069-~$0.275. On the technical analysis front, the stock has a support level of ~$0.193 and a resistance of ~$0.318. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at some discount as compared to its peer median, considering a decline in tin sold and ore mined in 3QFY21. For this purpose, we have taken peers Mineral Resources Ltd (ASX: MIN), Western Areas Ltd (ASX: WSA), Fortescue Metals Group Ltd (ASX: FMG) to name a few. Considering 3QFY21 revenues nearly reached the revenue level of 1HFY21, improved tin prices, optimising costs for better margins, and valuation, we recommend a “Hold” rating on the stock at the current market price of $0.25, up by ~2.04% as on 25 May 2021.

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 do not hold interests in any of the securities or other financial products covered on the Kalkine website.