Alphamin Resources — New tin producer generating cash flow

Alphamin Resources (TSXV: AFM)

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Research: Metals & Mining

Alphamin Resources — New tin producer generating cash flow

Alphamin’s team developed the high-grade Mpama North tin project from resource to production in under five years. Now a mid-tier producer mining c 4% of the world’s tin in the lowest cost quartile of the global cost curve, Q3 results showed a 24% increase in EBITDA to US$16.1m cf Q220.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Alphamin Resources

New tin producer generating cash flow

Metals & mining

QuickView

24 November 2020

Price

C$0.25

Market cap

C$295m

C$1.3078/US$

Share price graph

Share details

Code

AFM

Listing

TSX

Shares in issue

1,180.4m

Business description

Alphamin Resources owns (84.14%) and operates the world’s highest-grade tin mine (the Mpama North mine with a grade of c 4.5% Sn) in the North Kivu province of the Democratic Republic of the Congo. Accounting for c 4% of the world’s mined supply, it is the second largest tin mine in the world outside China and Indonesia.

Bull

Tin is a pro-technology metal used extensively in 5G, internet, solar and battery circuit boards.

East African export corridor to Mombasa relatively unscathed by coronavirus crisis.

Conflict-free minerals legislation provides preferment to official metal/mineral producers.

Growth prospects and highly prospective licences.

Bear

Remote location with three-month re-supply time loop (although critical parts can be seven days by air).

US$55m net debt equates to gearing of 31.6% and leverage of 24.0%.

Only 42% free float.

Analyst

Charles Gibson

+44 (0)20 3077 5724

Alphamin’s team developed the high-grade Mpama North tin project from resource to production in under five years. Now a mid-tier producer mining c 4% of the world’s tin in the lowest cost quartile of the global cost curve, Q3 results showed a 24% increase in EBITDA to US$16.1m cf Q220.

High-grade, simple mining with simple processing

Alphamin mines the world’s highest-grade tin resource, in the form of cassiterite, one of the densest minerals on earth, making it amenable to (non-energy intensive) gravity separation to produce a 60% concentrate, which Alphamin then sells at the mine gate to a dedicated off-taker. The mine is underground, fully mechanised, trackless, simple, shallow and ostensibly self-reliant with a small mining fleet and its own power and road infrastructure. As such, it is firmly established in the lowest-cost quartile of the global cost curve and enjoys relatively wide margins (eg Mpama North’s AISC was US$10,777/t in Q320, cf a prevailing tin price of US$18,640/t). Currently on a growth drive, each incremental ton of tin may be produced at an even lower AISC, to which end Alphamin is de-bottlenecking its plant (which should increase throughput by c 10%) at the same time as it is installing a fine tin recovery plant (which should increase production by a further 10%) by mid-2021. Concurrently, the same Alphamin team is allocating capital to drill and extend the size of the current orebody as well as drilling the known Mpama South orebody just 800m away from the existing processing plant. It is also aiming to allocate capital in search of a third orebody on its highly prospective licence area.

North Kivu operating environment

Such security problems as attract the attention of western headline writers in North Kivu are typically isolated, targeted and tribal in nature and affect Alphamin to a relatively small degree. Moreover, Mpama North’s isolated location offers it additional protection away from flashpoints, while its primary product (tin) renders it of little interest to either local artisanal miners or conflict mineral smugglers.

The tin market

In the medium to long term, tin is one of the metals expected to benefit most from the electric vehicle revolution. In the short term, Alphamin is well placed to substitute declining concentrate supplies from Myanmar to China (which produces c 50% of the world’s tin), which is reported to have fallen by c 30% in recent months as immediately accessible ore from unregulated mines has been exhausted. In the meantime, AFM is trading at a price 7.4x Q3 pre-financing (annualised) cash flows (excluding net interest).

Historical financials

Year
end

Revenue
(US$m)

PBT
(US$m)

EPS
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/16

0.0

(5.0)

(0.01)

0.00

N/A

N/A

12/17

0.0

(3.7)

(0.01)

0.00

N/A

N/A

12/18

0.0

(3.2)

0.00

0.00

N/A

N/A

12/19

27.2

(2.6)

0.01

0.00

25.0

N/A

Source: Company sources

Alphamin Resources is a client of Edison Investment Research Limited

General disclaimer and copyright

This report has been commissioned by Alphamin Resources and prepared and issued by Edison, in consideration of a fee payable by Alphamin Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Alphamin Resources and prepared and issued by Edison, in consideration of a fee payable by Alphamin Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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