Company Overview: Metals X Limited is a diversified resource company engaged in developing and exploring for minerals and metals in Australia. The Company produces tin, copper and nickel. Metals X is 100% owner of the Nifty Copper Operations (Nifty), located in the East Pilbara region of Western Australia. Nifty comprises an historical open pit oxide mine and an underground sulphide mine. The Company is a significant tin producer through its 50% ownership of the Bluestone Mines Tasmania Joint Venture. The key assets of the joint venture are the Renison Tin Mine, a 700,000 ton per annum tin concentrator plant, and the Renison Expansion Project. The Company’s nickel division consists of its 100% ownership of nickel assets in the Central Musgrave Project (CMP) located in the Central Musgrave Ranges. The CMP project encompasses 1,957 square kilometers of prospective exploration tenure that includes the Wingellina nickel deposit, the Claude Hills nickel deposit, and the Mt Davies exploration prospects.


MLX Details
 

Metals X Limited (ASX: MLX) is a diversified resource company that produces tin, copper and nickel, and its 100% owned Nifty Copper Operations’ ramp-up is seen as the key to future success as MLX is targeting to reach its 1.5 year turnaround period. MLX is further targeting 35ktpa of copper production by mid-2018 through enhanced processing capacity. The group expects to have improved consistency and grades with production moving out of historical areas into fresh production regions. Its 50% owned Bluestone Mines Tasmania Joint Venture is home to key tin assets that include the Renison Tin Mine and the Renison Expansion Project. With Renison expected to move post capex with ore sorter nearing completion and tailings dam developments now complete, FY19 will be crucial for any lift in cash flows with lift in tin production. MLX 100% owned nickel assets in the Central Musgrave Project (CMP) include the Wingellina nickel deposit, the Claude Hills nickel deposit, and the Mt Davies exploration prospects. Wingellina has witnessed an advancement in terms of approvals for the Nickel-Cobalt project, and defines the largest undeveloped nickel-cobalt deposits in the world.

Improving production at copper division: Metals X reported that their copper division delivered a production of 5,003 tonnes contained in concentrate during the March 2018 quarter which was 6% more as compared to the December 2017 quarter production of 4,726 tonnes. The division’s EBITDA improved to $3.3 million during the quarter as compared to ($1.5 million) in the March quarter. The group also controlled their total costs for the operation during the quarter as compared to the prior quarter. But management sees unit costs to continue to be relatively on a high side as they are aiming to enhance their copper production. Meanwhile, the division’s cash flow improved to $1.1 million (unaudited) during the quarter against the December quarter cash flow of ($3.9) million driven by the lower costs and higher copper production. The group also made a solid progress during the quarter to bring further areas outside of the historic ‘checkerboard’ into production to cut dilution and ramp-up mine tonnage. They are also executing their business improvement and ramp-up plan and accordingly aiming for a 40,000tpa copper production rate, with 35,000tpa production rate expected by mid-2018. The division delivered two new loaders and two new charge-up machines during the quarter while finished the mobile equipment refurbishment and replacement program. Moreover, a raise bore machine was deployed to site to expedite stope slot rising. The Grade control and infill drilling continues to confirm continuity of mineralization and mainly boost the geological models and mine planning. The review of geophysical and geochemical datasets at Maroochydore was successful in identifying numerous targets.

 

Nifty Copper Production and Costs (Source: company reports)

Expanding projects and production in Tin division: As per the Tin division performance, the production decreased to 1,725 tonnes of tin contained in concentrate at an all-in-cost of $17,196 per tonne of contained tin as compared to 1,785 tonnes at $18,101 per tonne during the December quarter. The division delivered an EBITDA of $10.2 million while the net cash flow reached $3.7 million (MLX 50% share). New tailings ‘D Dam’ has been close to completion with only minor works remaining at the end of the quarter. Rentails environmental studies and modelling continued to advance the statutory approvals process.

Renison expansion-ore sorter highlights: The group reported that they started the construction of a new crusher plant and ore sorter last year. Ore sorting trials showed that over 25% of underground feed to the processing plant is essentially waste that dilutes ore feed and could be rejected with tin losses of less than 3%. The implementation of ore sorting would enable a cost-effective expansion at Renison with a rise in mining production without the requirement to expand the processing plant. The economic evaluation indicates a project payback period of less than twelve months for a total capital outlay of over $14 million (100% basis). The Project remains on track to be finished in the June 2018 quarter, with engineering completion expected by May 2018. On-site construction of the crushing and ore sorting plant started in late January 2018 with construction to be finished by the end of May 2018. The ore sorter design requires a rise in annualised mine production over the next twelve months to 940,000 tonnes while maintaining the processing plant at a rate of over 720,000 tonnes per annum. Tin production with the proposed ore sorter is now expected to rise by 15-20% from the current levels. Moreover, better economics of Renison would facilitate a re-optimisation of the current Mineral Resource. Underground mining continues towards opening up further stoping areas in preparation for the commissioning of the ore sorter in the June quarter with the site currently generating ore stockpiles to assist with a smooth transition.
 

Renison underground mine showing extent of mining activity (Source: Company reports)

Wingellina Nickel-Cobalt Project progress: The group’s 100% owned Wingellina Nickel-Cobalt Project is their Central Musgrave Project which has major undeveloped nickel-cobalt deposits in the world. The Central Musgrave Project has a Mineral Resource having over 2.0 million tonnes of nickel and 154,000 tonnes of cobalt within which Wingellina hosts an Ore Reserve of over 1.56 million tonnes of nickel and 123,000 tonnes of cobalt. The group also finished a feasibility study (±25%) and signed an agreement with the Traditional Owners getting the consent to undertake mining activities. They got the Public Environment Review approval from the EPA in November 2016. Meanwhile, as the optimisation of the high grade cobalt – nickel pits incorporating the latest drill results is in progress for the purpose of targeting a potential higher nickel-cobalt grade, lower capital start-up option for Wingellina. Metallurgical testwork for the production of high quality cobalt and nickel sulphates was slated to be finished by April 2018. Earlier variability testwork showed that leach recoveries of over 94% for both nickel and cobalt are achievable with acid consumptions of less than 300kg/t.


Indicative High Grade Cobalt-Nickel Pit Tonnages (Source: Company reports)

Balance sheet position: The group has a cash and working capital of $83.0 million. They also hedged 1,500 tonnes of copper per month out to July 2018 while granted calls up to A$8,255 per tonne of LME copper and bought puts as low as A$7,600 per tonne of LME copper. Given the volatility in the markets, this hedging activity would protect them from downside movement in copper price. The copper price exceeded the ceiling prices during the quarter while the firm delivered 4,500 tonnes of copper into the hedges at a loss of $3.1 million.

Stock performance: The shares of MLX were seen to be under some pressure this year, falling over 11.5% in this year to date (as of May 22, 2018), but recovered in the last one month by 12.9%. The group improved their Operating EBITDA to $13.5 million during the March quarter as compared to the $8.5 million in the December quarter. They built a solid cash and working capital of $83.0 million with no corporate debt. Moreover, the group notified that the construction of ore sorting circuit for a 15-20% expansion in tin production is on track of their budget with practical completion slated for the June 2018 quarter. The group is among the top 10 global primary tin producers with an AISC margin of ~$9,000/t. They are also enhancing their copper production from over 20,000tpa Cu +40,000tpa Cu wherein they set a mid-year target of 35,000t Cu at a run rate at AISC US$2.20/lb for Nifty and end of year target of 40,000t Cu. They have an extensive regional exploration holding in WA with 3,220 km2 tenure. The group holds a development-ready world class nickel-cobalt project, Wingellina Project, which is Australia’s largest undeveloped nickel, cobalt and scandium asset with 2.0Mt contained nickel and 154,000t contained cobalt. The current commodity dynamics with nickel’s growing demand are also expected to provide more opportunities for MLX. Given the group’s ongoing expansion projects and a decent pipeline ahead, organic growth opportunities look promising. Based on the foregoing, we recommend a “Buy” on the stock at the current price of $ 0.955.


MLX Daily Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.