Metals X Raising Tin Profile

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Metals X has furthered its definitive feasibility study on the Rentails tin and copper re-treatment project, providing robust economics. Canaccord Genuity estimates a final investment decision will take 6-9 months.

-Could become a substantial global supplier of tin
-Rentails offers growth in a segment with few options
-Uncertainty lies with partner ability to fund contribution
 

By Eva Brocklehurst

Metals X ((MLX)) has furthered its definitive feasibility study on the Rentails re-treatment project in Tasmania (50% owned), providing robust economics. Initial capital costs are slightly higher than brokers expected but the life-of-mine and guidance on costs is broadly in line with previous development assumptions.

The company, along with its joint-venture partners, will now ponder financing options and timing of long lead items and undertake the final approval process before a final investment decision, which Canaccord Genuity estimates will take 6-9 months.

Rentails is expected to produce 5,400tpa of tin and 2,200tpa of copper over an 11-year life. Macquarie updates its estimates for returns as the definitive feasibility study has translated into higher production in the early years, although there is no meaningful change to valuation for the internal rate of return of 22% for the project.

Canaccord Genuity estimates the Renison mine and Rentails combined could supply 13,400-13,900 tonnes of tin, which would represent around 3.75% of primary global supply.

Rentails

The tailings have an average grade of 0.45% tin and 0.23% copper. The process will incorporate a reclamation of the tailings which will be ground using conventional technology. Copper is then removed via flotation into concentrate, with the tin undergoing further separation before flotation to produce a concentrate.

The concentrates will be high-quality, expected to grade 72% tin and 70% copper. The company has indicated revenue is likely to be around 94% of London Metal Exchange pricing for tin and 75% for copper.

At this stage, Canaccord Genuity maintains its nominal value for Rentails unchanged at $50m until there is clarity on funding and a development timeline. The broker expects margins at the operation to be around $10,000/t for tin, after accounting for capital expenditure and sustaining capital against a current Australian dollar tin price of $26,000/t.

The tin segment has few growth options, the broker observes, and Rentails is a logical avenue for the company to pursue in order to increase its exposure to the metal. There is a lack of meaningful tin production coming online globally and stockpiles continue to trend lower.

Canaccord Genuity notes that tin was one of the best performing metals in 2016 and the market appears structurally supported in the medium term. Metals X used a US$20,000/t tin price for its definitive feasibility study, which the broker suggests is conservative against consensus estimates for the commodity over the next five years.

Funding

Canaccord Genuity suggests an interesting dynamic may arise with regard to the joint-venture partners. Partners include L'Sea Resources with 42% and Yunnan Tin with 8%. The former, the broker notes, only has a market capitalisation of around $100m.

Assuming development went ahead in 2018, Metals X should be in a reasonably comfortable position to fund its attributable $102.5m from existing cash flow from its Renison and Nifty (copper) mines, in the broker's estimate.

Canaccord Genuity, not one of the eight brokers monitored daily on the FNArena database, maintains a Buy rating and $1.15 target and flags the company as a top pick among the base metals players under coverage. Macquarie has a Outperform rating and $1.00 target. At full production for both Nifty and Renison, which should occur in FY20, Macquarie estimates Metals X trades at a free cash flow yield of over 25%.
 

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