Almonty Industries
Written by
Almonty Industries |
APT price rebound key, finances bolstered |
Q116 results |
Metals & mining |
11 March 2016 |
Share price performance
Business description
Next event
Analysts
Almonty Industries is a research client of Edison Investment Research Limited |
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The present weakness in tungsten (APT) prices continues to be reflected in Almonty’s financial results, against a backdrop of steady production, improving costs and corporate efforts to strengthen its balance sheet. Alongside its corporate activity, Almonty is progressing optimisation of its Wolfram Camp Mine (WCM) to bring costs in line with Los Santos’s, as well as progressing development of its Sangdong asset (commissioning is expected in 2017). With APT prices at 10-year lows, it is clear a rebound in prices is the key for Almonty emerging as the pre-eminent global tungsten producer and maintaining itself as a going concern.
Year end |
Revenue (C$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/13 |
18.3 |
0.6 |
1.6 |
0.0 |
16.8 |
N/A |
09/14 |
29.6 |
9.9 |
25.4 |
2.6 |
1.1 |
N/A |
09/15 |
36.1 |
(20.9) |
(40.4) |
0.0 |
N/A |
N/A |
09/16e |
37.1 |
(3.7) |
(4.3) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
February 2016 APT prices firming as costs decline
We note that European APT prices at 19 February show a slight improvement, averaging US$170/mtu. This is still a way off our FY16 average APT price assumption of US$250/mtu, which we will revise if there are no further significant price improvements by the end of Q216. All-in cash costs at Los Santos for Q116 were US$124/mtu and at WCM averaged US$465/mtu. Almonty states it may suspend operations at WCM if APT prices remain at current levels.
Finances strengthened, supply agreements extended
On 6 January Almonty announced entering into new financing agreements totalling C$28m (US$20.8m), providing sufficient capital to service its near-term debt obligations (see page 2). The company has also agreed extensions to its off-take agreements at Los Santos and Panasqueira – both for five years – providing the company with security over future revenues.
Valuation: Re-stated at the Q1 stage
We have adjusted our model for Almonty’s FY15 results. At the Q1 stage we retain all our existing production and valuation assumptions (see our September 2015 note Robust Q315 results despite weaker APT. Our sum-of-the-parts valuation remains C$1.26/share. Our base-case APT price assumptions average US$250/mtu in FY16, US$300/mtu in FY17 and US$350/mtu in FY18. We maintain our conservative stance on the near- to medium-term operational and cost improvements at WCM. As previously stated, Sangdong adds considerable value at a 10% discount rate and assuming a 50/50 equity/debt funding split. Overall, we continue to believe that Sangdong’s attractive economics coupled with a relatively large and high-grade resource base makes the project a valuable addition to Almonty’s asset portfolio, especially given the current commodity price downturn that favours exposure to low-cost assets.
Financials
On 6 January Almonty announced it had secured additional debt facilities totalling C$28m, comprising C$18.9m (US$14m) for an expansion of its existing guaranteed loan agreement and C$9.5m (US$7m) relating to a working capital loan agreement with UniCredit Bank. At the end of Q116 Almonty’s net debt position was C$45.1m, which has now increased for the above debt facilities, by C$28m, to give a provisional total for its debt funding facilities of C$73m. This compares to our end FY17 net debt forecast of C$57m.
Most of the company’s debt is held under instruments with maturities between now and 2019; the first matures in July 2016 and relates to an un-secured C$1.6m loan with Spanish Banks.
If APT prices do not improve from current levels, then our FY17 net funding requirement rises to C$69m.
Almonty announced the completion of its acquisition of Woulfe Mining on 11 September 2015. We have now included the 34.8m new Almonty ordinary shares that were issued in connection with this transaction in our model, which now total 87.1m. Almonty acquired all the outstanding shares in Woulfe paid for purely in shares at a ratio of 1 Woulfe share per 0.1029 of an Almonty share.
Exhibit 1: Financial summary
C$'000 |
2013 |
2014 |
2015 |
2016e |
|
Year end September |
IFRS |
IFRS |
IFRS |
IFRS |
|
PROFIT & LOSS |
|||||
Revenue |
|
18,341 |
29,609 |
36,142 |
37,118 |
Cash cost of Sales |
11,400 |
10,287 |
37,743 |
22,183 |
|
Gross Profit |
6,941 |
19,322 |
(1,601) |
14,935 |
|
EBITDA |
|
4,138 |
16,109 |
(7,940) |
9,185 |
Operating Profit (before except.) |
691 |
11,499 |
(16,485) |
1,757 |
|
Exceptionals |
0 |
0 |
0 |
0 |
|
Other |
0 |
0 |
0 |
0 |
|
Operating Profit |
691 |
11,499 |
(16,485) |
1,757 |
|
Net Interest |
214 |
443 |
1,404 |
2,464 |
|
Profit Before Tax (norm) |
|
602 |
9,893 |
(20,910) |
(3,729) |
Profit Before Tax (FRS 3) |
|
602 |
9,893 |
(20,910) |
(3,729) |
Tax |
0 |
0 |
0 |
0 |
|
Profit After Tax (norm) |
602 |
9,893 |
(20,910) |
(3,729) |
|
Profit After Tax (FRS 3) |
602 |
9,893 |
(20,910) |
(3,729) |
|
Average Number of Shares Outstanding (m) |
37.0 |
38.9 |
51.8 |
87.0 |
|
EPS - normalised (c) |
|
1.6 |
25.4 |
(40.4) |
(4.3) |
EPS - normalised and fully diluted (c) |
1.6 |
25.4 |
(40.4) |
(4.3) |
|
EPS - (IFRS) (c) |
|
1.6 |
25.4 |
(40.4) |
(4.3) |
Dividend per share (c) |
0.0 |
2.6 |
0.0 |
0.0 |
|
Gross Margin (%) |
37.8 |
65.3 |
-4.4 |
40.2 |
|
EBITDA Margin (%) |
22.6 |
54.4 |
-22.0 |
24.7 |
|
Operating Margin (before except.) (%) |
3.8 |
38.8 |
-45.6 |
4.7 |
|
BALANCE SHEET |
|||||
Fixed Assets |
|
35,921 |
63,952 |
108,984 |
103,583 |
Mine development |
12,690 |
26,554 |
88,136 |
60,202 |
|
PP&E |
12,168 |
18,074 |
0 |
16,414 |
|
Deferred tax asset |
3,025 |
3,569 |
4,036 |
4,036 |
|
Tailings inventory |
7,409 |
14,514 |
15,410 |
21,529 |
|
Other |
629 |
1,241 |
1,402 |
1,402 |
|
Current Assets |
|
6,202 |
24,164 |
8,543 |
(6,516) |
Inventories |
2,510 |
6,648 |
4,076 |
2,396 |
|
Receivables |
2,341 |
1,980 |
2,989 |
3,012 |
|
Cash |
1,083 |
14,916 |
866 |
0 |
|
Other |
268 |
620 |
612 |
612 |
|
Current Liabilities |
|
(10,502) |
(17,193) |
(32,578) |
(26,207) |
Payables |
(5,456) |
(6,733) |
(15,453) |
(9,082) |
|
Short term borrowings |
0 |
(6,332) |
(13,634) |
(13,634) |
|
Other |
(5,046) |
(4,128) |
(3,491) |
(3,491) |
|
Long Term Liabilities |
|
(4,317) |
(23,758) |
(35,947) |
(35,947) |
Long term borrowings |
(3,721) |
(22,296) |
(30,801) |
(36,398) |
|
Other |
(596) |
(1,462) |
(5,146) |
451 |
|
Net Assets |
|
27,304 |
47,165 |
49,002 |
34,912 |
CASH FLOW |
|||||
Operating Cash Flow |
|
378 |
8,661 |
1,408 |
(7,133) |
Capex |
(5,841) |
(7,621) |
(12,783) |
(6,269) |
|
Acquisitions/disposals |
0 |
112 |
0 |
0 |
|
Equity financing |
0 |
(218) |
0 |
0 |
|
Dividends |
0 |
(1,001) |
0 |
0 |
|
Other |
(284) |
(50) |
(197) |
0 |
|
Net Cash Flow |
(5,747) |
(117) |
(11,572) |
(13,401) |
|
Opening net debt/(cash) |
|
(1,056) |
2,638 |
13,712 |
43,569 |
Other |
2,053 |
(10,957) |
(18,285) |
0 |
|
Closing net debt/(cash) |
|
2,638 |
13,712 |
43,569 |
56,970 |
Source: Company accounts, Edison Investment Research
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