Metals X Firing On Copper And Tin

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Base metals player Metals X has two key mines in Western Australia and Tasmania and brokers are upbeat about the prospects.

-Global production disruptions support the company's copper and tin mines
-Brokers expect production can be boosted significantly at both Nifty and Renison
-Further revenue potential exists in both nickel and cobalt

 

By Eva Brocklehurst

Metals X ((MLX)) offers exposure to copper and tin through its operating mines at Nifty in Western Australia and Renison Bell in Tasmania and several brokers are upbeat about their outlook.

The copper price is currently being supported by production disruptions at two of the world's largest copper mines, Escondida (Chile) and Grasberg (Indonesia). Commodity analysts are continuing to forecast higher prices and growing long-term supply deficits because of robust demand in the face of constraints on supply.

Meanwhile, tin prices have eased from two-year highs, but with low stockpiles and supply constraints, prices are expected to trend up in the face of solid demand from the electronics sector. Bell Potter notes the average realised tin price in the first half was estimated to have been 30% above the prior corresponding half, at US$8.93/lb, under the influence of reduced supply from key producers in Indonesia and China.

Now the miner's gold assets have been offloaded, Macquarie believes a leaner Metals X  is better positioned to unlock significant organic growth potential. Production can be boosted by 30% at Nifty and by 20-25% at Renison within the next 2-3 years, the broker asserts. Macquarie initiates coverage on the stock with a Outperform rating and $1.00 target.

Metals X has a plan to boost production and extend the mine life at Nifty. Macquarie's site tour has signalled that prior operating issues are being addressed. Production forecasts assume that a rise in underground capital development expenditure delivers a material increase in output.

Copper production is expected to rise to over 42,000 tonnes per annum from the current rate of 31,600tpa. All-in sustainable costs (AISC) are expected to be lower at US$1.75/lb versus US$2.15/lb, although Macquarie retains cost forecasts above guidance, given the poor operating track record of the mine.

Bell Potter is also encouraged by the signs of significantly improved performance at the mine. The overall objective is to return the process plant to continuous production over the next 12-18 months. The broker, not one of the eight monitored daily on the FNArena database, has a Hold rating and $0.85 target.

Canaccord Genuity Australia maintains a favourable view on Nifty and Renison as well. The broker believes revised modelling, together with the current underground drill program, should mean a sizeable increase in the Nifty reserve at the mid-year update. The broker believes there is potential to increase production to 45,000tpa for minimal capital expenditure.

The company has produced 6,000tpa of tin in concentrate over the past five years and has identified a simple upgrading process which could lift product via the addition of an ore sorter in the front of the process plant. Ore sorting could increase the production profile by 15-20% if adopted and Canaccord Genuity expects Metals X to make an investment decision this year.

The transition to an owner-operator status at Renison, the broker notes, has resulted in an improved cost profile in the first half and, given buoyant tin prices, the company continues to explore expansion options.

The broker was lead manager to the company's recent placement of 68m shares at $1.48 a share, which raised $100.6m in August last year. Canaccord Genuity, not one of the eight stockbrokers monitored daily on the FNArena database, has a Buy recommendation and $1.10 target.

Further Revenue

The company has further potential revenue streams. The Rentails project could boost tin production by around 5,000tp by processing previously mine tailings from Renison, Macquarie believes. A definitive feasibility study will be released in the next few months and the company will then consider financing options for the development of its 50% of the project. On Macquarie's estimates Rentails generates around a 22% internal return.

In the medium to long term there is potential to add nickel and cobalt production through the development of Central Musgrave. The company continues to progress this project while awaiting a recovery in nickel prices. Macquarie's development scenario generates an internal rate of return of less than 10% and, as a result, this project is not included in base case forecasts.

Pursuing growth through acquisitions is expected to remain a core part of the company's strategy although there are limited targets in base metals in Australia at this point, the broker believes.

History

The company acquired the Nifty mine in mid-2016 from Aditya Birla for $72m. The project had a poor history of operations and this culminated in a severe failure of the underground mine and subsequent suspension of the license. Macquarie has assessed that, following a site tour, the operating issues are attributable to a chronic under-capitalisation and the company's plans to boost production should be achievable.

Renison Bell was the company's sole source of cash flow from 2008 to 2013. This tin mine has a long history and first commenced production in 1968. Metals X is the operator in a 50:50 joint venture with Yunnan Tin Corp.

Gold assets were recently divested to a new listing called Westgold Resources ((WGX)). The company has two legacy positions in Brainchip Holdings ((BRN)) and RNI ((RNI)). Macquarie does not believe either investment is core to the company and expects these stakes will be disposed of in due course.
 

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