About capital allocation, the bad about the purchase of the 3% stake in Tanami Gold, is that Tanami is majority owned by APAC, MLX’s 20%+ shareholder. The good is however, at the time of the purchase the AUD 0.034 price represented a slightly negative EV. At USD 2000 gold the recent scoping study provides an NPV8 of AUDm 17m, so big upside, particularly in light of the negative EV (and even for the AUD 1m market value of the stake). Yes, I hear you scoping studies are just fantasy. However, in July 2015 Northern Star bought a 25% stake in the Central Tanami Gold project for AUD 20m, said otherwise at the bottom of the recent gold bear market (USD 1200) a major miner assigned an EV of AUD 40m to Tanami Gold, or an EV of AUD 1.2m for MLX’s stake. So even using this valuation MLX recently paid AUD 1m to get AUD 1.2m project value + slightly more than AUD 1.0m in cash & securities. I.e. these guys are good capital allocators (although buying back their own shares would have been certainly better for the share price). http://clients3.weblink.com.au/pdf/TAM/01646849.pdf
By, the way MLX comes with a lottery ticket attached.
Should Nico’s CMP project ever get developed that should the value of MLX’s 1.75% royalty should be easily as large as the current market cap. CMP contains 1.56mt of Nickel and 122kt of Cobalt in 2P reserves, at prices of USD 15k per ton of Nickel and USD 25k per ton of Cobalt that is an in-situ metal value of more than USD 26bn.
Thanks for the details. These are my favourite types of comments. I didn't know about the Nico royalty. With those Nickel and Cobalt prices you mentioned what would be the annual income for Mlx for that Roalty? And when could it happen if the project goes smoothly?
About the Gold investment the way I think about it is if it's a great opportunity they should probably buy a more significant stake. Now it's seems like a source of noise and confusion among the shareholders who just want to invest in a tin miner and the profit will not be that high even it turns out well. But in general I tend to be against my investments holding positions in public companies regardless of whether it ends up working out because if I wanted to invest in those companies I would just do it myself. Like I wrote about Africa oil and I want them to sell their public company investments regardless of whether they will work out because I can invests in those companies myself and I would rather Africa oil to buy back stock or invest in their business. I invest in a company because of what that company is doing. So that is my reasoning for disliking it.
I absolutely agree with your view of Tanami as noise, it is however at least not value destructive noise and it probably might get bigger at some point in time when this asset gets developed (and we should not forget that MLX background is actually multi-metal).
Nico is in my view unlikely to get developed in the foreseeable future as it will be most likely very capital intensive (saw estimates of above USD 2.5bn). That said interest in the are has increased somewhat and there is a good article about Nico https://valueinvestorsclub.com/idea/Nico_Resources/0056707850
Thus, at the current stage I would not expect MLX investors to really price this, however once Nickel again crosses USD 25k this will be interesting. I think the old feasibility study went for a 40k ton Nickel p.a. operation, i.e. at USD 25k we talk USD 17.5m for MLX just from Nickel…
The more immediate upside for MLX is certainly the Rentails development and this is in my view the project for which they are piling up all the cash. In 2017 Rentails was 37% IRR on 205 AUDm capital at the then prevailing tin price of USD 20k. Although the capex has certainly increased I would still expect that the IRR even at a USD 25k tin price should have improved from the historical result.
I have mostly ignored the tailings project. So they are looking to make money from some old stuff. My lack of knowledge about companies I write about can be impressive. You have an idea of when that will start producing cash flow and how much? Let's say at the current tin price.
The Rentails DFS update is scheduled in 2025 so probably the project is built sometime in 2027/28. According to the 2017 DFS 10ktn Sn on 10% basis with just of AUD 13k cost for a 50% cash operating margin back in the day, thus this was AUD 65m p.a. for MLX at USD 20k tin (i.e. 2017 tin price and cost), so this will clearly be a major growth project once finished.
For 2024 the positive factor is however higher grade due to Area5 access and lower capex as the mine upgrade project is finished.
Thanks for the info. There is kind of a Long term bullish case that can be made with this project in mind. Not just wait until the tin price doubles and sell with 2-4x profit which has been my outlook so far.
MetalsX has some capital allocation issues as JP Frey mentioned above. The video below (33:52 to 44:38) details the relationship between APAC, Old Peak and MetalsX. Better hope they are saving money for rentails, instead of something that benefits their large shareholders. https://www.youtube.com/watch?v=XL567iJYh7U&t=2094s
Theres a third listed tin producer not well known: Malaysia smelting Corp on the KLSE (not accessible by interactive brokers). Theres a secondary listing on SGX but its illiquid. I just bought it, so I'm talking my book:
thanks for the write up. I love the reasoning and the style!
Only 1 question regarding demand assumption: graph shows demand for chips is on the rise.
Overall think the whole AI frenzy would subside - that would bring down demand for Tin and would be a minus on the thesis.
If instead we assume demand continues (i.e. the AI frenzy goes on with SMCI doubling every month), then my question is: is Tin the best source of returns? Wouldn't an investor be better placed betting on any of the pumped up tech, given that upside here is limited.
Well the AI thing is just one part of the tin thesis. The supply situation is actually the bigger reason to invest in tin in my opinion and the demand for tin should keep growing in multiple sectors as demonstrated in the first picture of the article.
agreed! i just need to reconcile my bearishness for the market (next 6 months) as a whole with the selection of stocks in the case my bearishness is proven wrong
It's moved a lot recently, Curious if you are still long and have an update opinion? I'm long AFM, but considering more tin exposure, this looks like a very interesting play. Did I miss the boat?
I'm still long. I think there is a set up for a tin to go to higher prices and as I explain this company benefits from that greatly and last time tin went close to 50k mlx went to 74 cents and metals x balance sheet is way stronger now and they have the buyback in place.
Nice write-up. I've some details to add.
About capital allocation, the bad about the purchase of the 3% stake in Tanami Gold, is that Tanami is majority owned by APAC, MLX’s 20%+ shareholder. The good is however, at the time of the purchase the AUD 0.034 price represented a slightly negative EV. At USD 2000 gold the recent scoping study provides an NPV8 of AUDm 17m, so big upside, particularly in light of the negative EV (and even for the AUD 1m market value of the stake). Yes, I hear you scoping studies are just fantasy. However, in July 2015 Northern Star bought a 25% stake in the Central Tanami Gold project for AUD 20m, said otherwise at the bottom of the recent gold bear market (USD 1200) a major miner assigned an EV of AUD 40m to Tanami Gold, or an EV of AUD 1.2m for MLX’s stake. So even using this valuation MLX recently paid AUD 1m to get AUD 1.2m project value + slightly more than AUD 1.0m in cash & securities. I.e. these guys are good capital allocators (although buying back their own shares would have been certainly better for the share price). http://clients3.weblink.com.au/pdf/TAM/01646849.pdf
By, the way MLX comes with a lottery ticket attached.
Should Nico’s CMP project ever get developed that should the value of MLX’s 1.75% royalty should be easily as large as the current market cap. CMP contains 1.56mt of Nickel and 122kt of Cobalt in 2P reserves, at prices of USD 15k per ton of Nickel and USD 25k per ton of Cobalt that is an in-situ metal value of more than USD 26bn.
Thanks for the details. These are my favourite types of comments. I didn't know about the Nico royalty. With those Nickel and Cobalt prices you mentioned what would be the annual income for Mlx for that Roalty? And when could it happen if the project goes smoothly?
About the Gold investment the way I think about it is if it's a great opportunity they should probably buy a more significant stake. Now it's seems like a source of noise and confusion among the shareholders who just want to invest in a tin miner and the profit will not be that high even it turns out well. But in general I tend to be against my investments holding positions in public companies regardless of whether it ends up working out because if I wanted to invest in those companies I would just do it myself. Like I wrote about Africa oil and I want them to sell their public company investments regardless of whether they will work out because I can invests in those companies myself and I would rather Africa oil to buy back stock or invest in their business. I invest in a company because of what that company is doing. So that is my reasoning for disliking it.
I absolutely agree with your view of Tanami as noise, it is however at least not value destructive noise and it probably might get bigger at some point in time when this asset gets developed (and we should not forget that MLX background is actually multi-metal).
Nico is in my view unlikely to get developed in the foreseeable future as it will be most likely very capital intensive (saw estimates of above USD 2.5bn). That said interest in the are has increased somewhat and there is a good article about Nico https://valueinvestorsclub.com/idea/Nico_Resources/0056707850
Thus, at the current stage I would not expect MLX investors to really price this, however once Nickel again crosses USD 25k this will be interesting. I think the old feasibility study went for a 40k ton Nickel p.a. operation, i.e. at USD 25k we talk USD 17.5m for MLX just from Nickel…
The more immediate upside for MLX is certainly the Rentails development and this is in my view the project for which they are piling up all the cash. In 2017 Rentails was 37% IRR on 205 AUDm capital at the then prevailing tin price of USD 20k. Although the capex has certainly increased I would still expect that the IRR even at a USD 25k tin price should have improved from the historical result.
I have mostly ignored the tailings project. So they are looking to make money from some old stuff. My lack of knowledge about companies I write about can be impressive. You have an idea of when that will start producing cash flow and how much? Let's say at the current tin price.
The Rentails DFS update is scheduled in 2025 so probably the project is built sometime in 2027/28. According to the 2017 DFS 10ktn Sn on 10% basis with just of AUD 13k cost for a 50% cash operating margin back in the day, thus this was AUD 65m p.a. for MLX at USD 20k tin (i.e. 2017 tin price and cost), so this will clearly be a major growth project once finished.
For 2024 the positive factor is however higher grade due to Area5 access and lower capex as the mine upgrade project is finished.
https://www.metalsx.com.au/wp-content/uploads/2023/08/18_MLX_ASX_Rentails-Tailings-Retreatment-Project-Fact-Sheet-and-QA_16-August-2023.pdf
https://www.metalsx.com.au/wp-content/uploads/2019/11/20170704-Rentails-Update.pdf
and the 2024 higher grade can be found:
https://www.metalsx.com.au/wp-content/uploads/2023/12/21_MLX_ASX_Ore-Reserve-and-LOMP-Update_19-December-2023.pdf
obivously 100% basis
Thanks for the info. There is kind of a Long term bullish case that can be made with this project in mind. Not just wait until the tin price doubles and sell with 2-4x profit which has been my outlook so far.
Great call - well done
Agree Alphamin is too risky at this price.
MetalsX has some capital allocation issues as JP Frey mentioned above. The video below (33:52 to 44:38) details the relationship between APAC, Old Peak and MetalsX. Better hope they are saving money for rentails, instead of something that benefits their large shareholders. https://www.youtube.com/watch?v=XL567iJYh7U&t=2094s
Theres a third listed tin producer not well known: Malaysia smelting Corp on the KLSE (not accessible by interactive brokers). Theres a secondary listing on SGX but its illiquid. I just bought it, so I'm talking my book:
https://profithunting.blogspot.com/2024/02/bought-malaysia-smelting-corporation.html
thanks for the write up. I love the reasoning and the style!
Only 1 question regarding demand assumption: graph shows demand for chips is on the rise.
Overall think the whole AI frenzy would subside - that would bring down demand for Tin and would be a minus on the thesis.
If instead we assume demand continues (i.e. the AI frenzy goes on with SMCI doubling every month), then my question is: is Tin the best source of returns? Wouldn't an investor be better placed betting on any of the pumped up tech, given that upside here is limited.
Thanks again - love to hear more
Well the AI thing is just one part of the tin thesis. The supply situation is actually the bigger reason to invest in tin in my opinion and the demand for tin should keep growing in multiple sectors as demonstrated in the first picture of the article.
agreed! i just need to reconcile my bearishness for the market (next 6 months) as a whole with the selection of stocks in the case my bearishness is proven wrong
It's moved a lot recently, Curious if you are still long and have an update opinion? I'm long AFM, but considering more tin exposure, this looks like a very interesting play. Did I miss the boat?
I'm still long. I think there is a set up for a tin to go to higher prices and as I explain this company benefits from that greatly and last time tin went close to 50k mlx went to 74 cents and metals x balance sheet is way stronger now and they have the buyback in place.