Alphamin Resources — Presenting the bull case

Alphamin Resources (CN: AFM)

Currency in CAD

Last close As at 25/01/2023

CAD0.96

0.00 (0.00%)

Market capitalisation

CAD1,337m

Research: Metals & Mining

Alphamin Resources — Presenting the bull case

Edison’s last note on Alphamin (Underlying results exceed prior forecasts, published on 6 December) was released using Edison’s erstwhile long-term tin price of US$23,425/t applied to financial forecasts beyond Q421. At the time of writing, the three-month price of tin was US$39,020/t, a 66.6% premium to our prior long-term price. It is Edison’s normal practice to use spot prices for near-term (ie quarterly) forecasts within the same financial year and then to use long-term prices thereafter. In recognition of the wide divergence of tin prices from our prior long-term prices this year, however, this note updates our forecasts on the assumption that the tin price remains at current levels throughout FY22. Note that this is the assumption on which our contingent valuation (below) is already based.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Metals & Mining

Alphamin Resources

Presenting the bull case

Updating FY22 estimates

Metals & mining

8 December 2021

Price

C$0.96

Market cap

C$1,146m

C$1.2631/US$

Net cash (US$m) at end-September 2021, including US$3.5m in lease liabilities and US$1.7m in unamortised fees.

1.0

Shares in issue

1,193.9m

Free float

42%

Code

AFM

Primary exchange

TSX-V

Secondary exchange

JSE AltX

Share price performance

%

1m

3m

12m

Abs

5.5

21.5

236.8

Rel (local)

7.0

19.5

179.9

52-week high/low

C$1.06

C$0.29

Business description

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

Next events

Mpama South resource

Q122

Q421/FY21 results

March 2022

Q121 results

May 2022

Analyst

Lord Ashbourne

(formerly Charles Gibson)

+44 (0)20 3077 5724

Alphamin Resources is a research client of Edison Investment Research Limited

Edison’s last note on Alphamin (Underlying results exceed prior forecasts, published on 6 December) was released using Edison’s erstwhile long-term tin price of US$23,425/t applied to financial forecasts beyond Q421. At the time of writing, the three-month price of tin was US$39,020/t, a 66.6% premium to our prior long-term price. It is Edison’s normal practice to use spot prices for near-term (ie quarterly) forecasts within the same financial year and then to use long-term prices thereafter. In recognition of the wide divergence of tin prices from our prior long-term prices this year, however, this note updates our forecasts on the assumption that the tin price remains at current levels throughout FY22. Note that this is the assumption on which our contingent valuation (below) is already based.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/19

27

(3)

0.01

0.00

76.0

N/A

12/20

187

(1)

(0.01)

0.00

N/A

N/A

12/21e

341

135

0.06

0.00

12.7

N/A

12/22e

442

251

0.13

0.00

5.8

N/A

Note: *PBT and EPS are as reported.

Increasing tin price forecasts

From its pandemic low of US$13,335/t on 23 March 2020, the (cash) tin price has advanced in an almost unbroken fashion to reach US$39,214/t at the time of writing (ie a 0.5% premium to the three-month price, above), with accelerated price appreciation since it reached US$18,642/t on 30 November 2020. It surpassed Edison’s erstwhile long-term price of US$23,425/t on 29 January 2021 and, according to a recent poll of 16 base metals analysts by Reuters, is now expected to average US$30,580/t in CY22. The lowest price forecast in the poll was US$25,250/t, which was nevertheless 14.8% higher than the most bullish forecast of US$22,000/t in the equivalent poll in January 2021, which at the time recorded a mean expectation for CY22 of US$19,800/t. Recently, Fitch Solutions increased its CY22 forecast by 25%, from US$26,000/t to US$32,500/t, and expects it to remain on a ‘firm uptrend’ in the coming decade, with an average of US$35,500/t by 2030.

Valuation: US$0.858 or C$1.083/share

Our valuation of Alphamin remains under review pending a reconsideration of our long-term tin price. In the meantime, assuming that the current three-month price of tin (US$39,020/t cf US$33,863/t in Q321) prevails for the remainder of Bisie’s 11-year life (ie adopting the current tin price as our long-term price) and with some slight refinements to operating and capital costs in FY22, we calculate an ostensibly unchanged valuation for Alphamin (excluding any blue-sky exploration potential) of 85.8 US cents, or 108.3 Canadian cents, per share. However, this rises to potentially as high as US$1.91/share (C$2.39/share) in the event that management is successful in its exploration strategy to the extent that it replenishes reserves and resources and keeps its plant at full capacity beyond FY27 (at the prevailing tin price). Note that, within this context, recent exploration activity has both narrowed the gap between Mpama North and Mpama South and substantially increased the zone of high-grade mineralisation at Mpama South leading to the possibility of an expedited development strategy.

Updated FY22 estimates

Exhibit 1: Financial summary

Accounts: IFRS, year-end: December, US$000s

 

 

2018

2019

2020

2021e

2022e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

 

 

0

27,221

187,445

340,645

442,032

Cost of sales

 

 

0

(7,915)

(119,554)

(133,072)

(141,807)

Gross profit

 

 

0

19,306

67,892

207,573

300,225

SG&A (expenses)

 

 

(9,440)

(14,526)

(17,238)

(19,841)

(21,123)

Exceptionals and adjustments

 

0

(3,673)

(7,649)

0

0

Depreciation and amortisation

 

(20)

(7,927)

(25,471)

(26,492)

(28,023)

Reported EBIT

 

(9,460)

(3,147)

25,182

161,240

251,079

Finance income/(expense)

 

3

(6,330)

(15,614)

(6,365)

209

Other income/(expense)

 

7

(4)

(1,518)

(152)

0

Exceptionals and adjustments

 

6,272

6,850

(8,776)

(20,050)

0

Reported PBT

 

 

(3,178)

(2,632)

(725)

134,672

251,288

Income tax expense (includes exceptionals)

 

 

0

7,755

(7,141)

(48,215)

(62,822)

Reported net income

 

 

(3,178)

5,123

(7,866)

86,457

188,466

Basic average number of shares, m

 

 

733

845

1,066

1,188

1,194

Basic EPS (US$/sh)

 

 

(0.00)

0.01

(0.01)

0.06

0.13

Adjusted EBITDA

 

 

(9,440)

8,453

58,302

187,732

279,102

Adjusted EBIT

 

 

(9,460)

526

32,831

161,240

251,079

Adjusted PBT

 

 

(9,450)

(5,809)

15,699

154,723

251,288

Adjusted EPS (C$/sh)

 

 

(0.00)

0.01

(0.01)

0.08

0.17

Adjusted diluted EPS (US$/sh)

 

 

(0.00)

0.00

(0.01)

0.06

0.12

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

230,626

255,125

239,103

223,271

199,586

Other non-current assets

 

 

2,467

10,632

15,882

23,871

36,581

Total non-current assets

 

 

233,093

265,757

254,985

247,142

236,167

Cash and equivalents

 

 

17,105

5,941

6,559

41,894

226,838

Inventories

 

 

3,235

27,755

21,866

18,666

24,221

Trade and other receivables

 

 

0

1,486

7,601

34,065

44,203

Other current assets

 

 

3,738

17,633

6,710

6,710

6,710

Total current assets

 

 

24,078

52,815

42,736

101,334

301,972

Non-current loans and borrowings

 

 

80,896

78,229

34,821

0

0

Other non-current liabilities

 

 

6,699

9,641

8,872

8,872

8,872

Total non-current liabilities

 

 

87,595

87,870

43,693

8,872

8,872

Trade and other payables

 

 

7,030

23,487

17,037

18,278

19,474

Current loans and borrowings

 

 

0

16,339

25,810

0

0

Other current liabilities

 

 

5,711

16,290

13,250

33,301

33,301

Total current liabilities

 

 

12,742

56,116

56,098

51,579

52,775

Equity attributable to company

 

 

131,914

145,215

171,735

246,877

405,453

Non-controlling interest

 

 

24,921

29,371

26,196

41,148

71,039

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

 

 

(3,178)

(2,632)

(725)

134,672

251,288

Net finance expenses

 

 

0

5,456

15,616

0

0

Depreciation and amortisation

 

 

20

7,927

26,504

26,492

28,023

Share based payments

 

 

300

403

471

0

0

Other adjustments

 

 

(6,272)

(6,851)

8,842

20,050

0

Movements in working capital

 

 

3,942

(6,710)

(20,281)

(22,022)

(14,498)

Interest paid / received

 

 

0

(3,092)

(11,378)

0

0

Income taxes paid

 

 

0

0

(843)

(48,215)

(62,822)

Cash from operations (CFO)

 

 

(5,188)

(5,498)

18,205

110,978

201,992

Capex

 

 

(116,094)

(22,720)

(7,448)

(18,649)

(17,048)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

151

(46)

(96)

0

0

Cash used in investing activities (CFIA)

 

 

(115,943)

(22,766)

(7,544)

(18,649)

(17,048)

Net proceeds from issue of shares

 

 

55,235

11,936

10,010

3,638

0

Movements in debt

 

 

69,448

0

(18,735)

(60,631)

0

Dividends paid

 

 

0

0

0

0

0

Other financing activities

 

 

6,317

5,165

(1,319)

0

0

Cash from financing activities (CFF)

 

 

131,000

17,100

(10,044)

(56,994)

0

Increase/(decrease) in cash and equivalents

 

 

9,869

(11,164)

617

35,335

184,944

Cash and equivalents at end of period

 

 

17,105

5,941

6,559

41,894

226,838

Net (debt)/cash

 

 

(63,791)

(88,627)

(54,073)

41,894

226,838

Movement in net (debt)/cash over period

 

 

(63,791)

(24,836)

34,554

95,967

184,944

Source: company sources, Edison Investment Research. Note: Income statement forecasts exclude ‘warrant charges’.


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 £60,000 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 2021 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

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 £60,000 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 2021 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

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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