Metro Mining: Extended Edition
BAUXITE
Disclaimer: I’m not an investment advisor. Nothing I have written in this article should be taken as investment advice. Everything I have written here could be inaccurate. Trust nothing you just read. I’m part of the Seeking Alpha Affiliate program which means I have a financial relationship with Seeking Alpha.
I wrote a short piece about Metro Mining in my watchlist article, but since Metro Mining has moved from the watchlist to the AlmostMongolian Portfolio I wanted to expand it.
I had to throw Metals X under the bus to get in.
In this one, I will also go into the bauxite market. Is Bauxite going up!? It has a hashtag on Twitter now. Which is one of the most bullish signs to happen to any commodity. The next step is to get a Sprott bauxite fund to squeeze the price and come up with a villain who is trying to suppress the price. “Evil smelters” or something like that.
Metro Mining
Metro Mining produces bauxite in Australia. Bauxite is mostly used in Aluminium production. It’s a simple deleveraging+production growth+cheap valuation story
Source: Google
The stock has done very well recently, but it doesn’t mean the stock is not still very cheap. I see a low effort 50-100% return and a potential 100-300% from this point with a low probability of significant losses.
Market cap =320m AU$
EV=380m AU$
They did a raise in May and gave a pro-forma net debt figure which was used to calculate EV. The most recent reported figure.
Source: Metro Mining May 2024 presentation
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Below are the projected financials from a third party.
Source: ShawandPartners report March 2024
This already looks like a cheap valuation, but it’s a lot cheaper when you account for potential higher production and the tax assets the company has that are not taken into account in the above projection.
Source: Metro Mining 2023 annual report
They have 244.2m of carried tax losses. For the next 2-3 years you should look at the profit before tax number. According to the management, they should be able to use these fully.
The company should reach a run rate of 7,000kt annually mid 2024. This means after that they should be at 100-150m AUD annually with these carried tax losses at Bauxite prices close to current prices and the company could be net cash positive by the start of 2025 or even at the end of 2024 depending on Bauxite prices and how they decide to use their profits. After the tax assets run out I assume they will be above 7mt/a of production so I assume higher than earnings than in that projection.
Forward expected multiples
P/E=2,1-3,2
EV/E=2,5-3,8
Source: Metro Mining March 2024 Petra Capital Report
Based on NPV this company is cheap and you can see the torque to the bauxite price here. It’s important to note that mining companies from my experience tend to trade at a discount to NPV so I would not rely on the gap between the share price and NPV to close. The current Metro mining stock price is 0,054 AUD
According to this website, the price is 62 USD atm
Source: Metal.com
At 60$ USD the NPV is 0,23 so that would be +430% if share price were to reach the NPV.
Just based on all this and taking a conservative view I see a 500-1000m AUD market cap company. Whether it’s in the lower or higher part of the range depends on the bauxite price.
Compared to the current market cap of 320m AUD
Source: SimplyWallStreet
Not much to be said about the above picture.
What’s the plan to get to 7 mt/a and have that as a baseline to grow from?
Source: Metro Mining May 2024 presentation
According to this slide, they should now have 7,5 mt/a production capacity. The reason that the production will be at 7 mt/a is weather-related disruption during winter. They are trying to ultimately get to a higher level of production. Get to 8-9 mt/a consistently which would mean a much bigger upside on the stock as we already see how cheap this company is at 7mt/a.
Source: Metro Mining May 2024 presentation
They also have contracts in place when it comes to selling the bauxite.
Contracts…, that’s crazy because I used to think the commodity market works like this. There is this spot market. It’s a big building where on the door it reads “the spot market”. You enter the building and they buy your metals from you at the current spot price after they check the spot price from Yahoo Finance and that’s it.
Source: Metro Mining May 2024 presentation
There seems to be an annual wet season shutdown at the end of the year. They have to shut down operations because of water. Ridiculous. These Australians must have never heard of umbrellas am I right guys? Haaa. We like to joke around here at AlmostMongolian. Me and my 9 employees running this Substack, the X account, and the YouTube channel. This is a big multi-media operation. A lot of production behind the scenes. Unfortunately a lot of drama also, but I don’t want to get into that right now you must understand. Maybe someday…
They are working on reducing the impact of weather on the operations. There is a cyclone season during the winter in northern Australia which is going to cause production disruptions.
This yearly shutdown is baked into the projected financials.
Mine characteristics and potential
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