Tin's are still improving f' Andrada
A $34k Tin Price makes me take another look at the numbers
Dear reader,
Two months ago following my back up malfunction I rebuilt my P&L model using GBP.
That was back when Tin Prices were $26k and in my forward model I used a $27k long term price. Two months later and $33k is embedded and Trading Economics tells us futures are pointing to $36k in 12 moths time.
So using a $34k average but keeping the numbers and assumptions the same let’s see the effect. This includes Lithium moving beyond the “Pilot Plant” (2,400 tonnes) to a full scale operation of 30,000 tonnes. I include a “2027” column but you can read that to be “the future”.
I was keen to re-examine the CI2 update (Continuous Improvement 2) expansion through the use of ore sorting pre concentrators and the dates we know how for when this will happen.
PRIOR:
NEW:
Key take aways:
Tin in FY25 and FY26 mean profits are about 50% higher. However in FY27 once the Lithium expansion kicks in and assuming a higher lithium price in FY27 then the profitability of Tin becomes a nicety and Lithium takes centre stage.
For 2H FY24 (i.e. up until February 2024) I’ve assumed a small by product credit for Lithium (10 tonnes) and a slight increase from Q3’s 346t of concentrate and 202t of contained. We see the AISC fall but taking into consideration Q3’s AISC was £23,900 it’s likely the 2H FY24 loss equals H1.
But we know the business remains on track to substantially reduce its AISC in the coming year, and in 1H FY25 we see higher tin recoveries as well as the 250 tonnes a month of Lithium via the Pilot Plant. I’m using $1,200 (£945) for pricing. I also assume 24 tonnes of Tantalum per the RNS after CY24 Q1. Tantalum is $150k/tonne but we know it will generate 3%-5% of revenue so I’ve assumed a much lower £22k/tonne price point to get to a 4% of revenue number. We also see the net AISC of tin sharply coming down as the by product sales offset costs. We also see a profit although I’m not modelling interest nor tax so this is an EBIT Profit.
2H25 we see the CI2 commissioning complete. I assume this takes until September 2024 so production doesn’t reach 2,600 tonnes/year until then. We see the Tantalum increase to 83 Tonnes/Year per the RNS.
1H26 we see steady state production during 2026 and the 30kt Lithium Plant is being built.
1H27 we see the impact of the 30Kt Lithium Plant. I’ve assumed a slightly higher price for Lithium, but also I’ve added £20k/tonne of Lithium to cover the cost but I still arrive to a negative “net of by products” AISC.
Upsides:
I’ve not considered the exploration upside and definiton of a JORC resource. H&P use a resource based valuation (EV per measured/indicated tonnes) to determine that ATM is 71% undervalued vs its peers.
I’ve used a Tantalum number which is several times below the market price and which may prove conservative. I’m using this because ATM say 3%-5% of revenue but it’s not clear quite why that’s the case. None of the Brokers explain this anomoly either.
Conclusion:
FY25 Price/Earnings is around a forecast 4.1, falling to 3X in FY26, and falling to 0.6X FY27. The current share price is incredibly cheap.
The higher tin price makes this more attractive yet feel like a one-way bet. What happened before when ATM didn’t follow the tin price? It spiked. Comparing Tin Futures vs ATM a re-rate seems a matter of time. Why has it disconnected?
The answer I believe is just over a year ago ATM became a “Lithium” play and was no longer considered a Tin play. Notice the pink line has no correlation to the blue until a year ago. But the price of Lithium has very little to do with ATM’s profits - least not for another 3 years. So the market, essentially, is blind to the orange line - focused on the pink.
Meanwhile it’s the ATM shareholders will be in the pink being able to buy at a 5.2p ask.
Regards
The Oak Bloke.
Disclaimers:
This is not advice
Micro cap and Nano cap holdings including those held in VC stocks might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"