Metals X is a very different company than it was when I interviewed management at last year’s Noosa Mining Conference with newly acquired gold assets successfully integrated and an important copper project about to be formally added to its portfolio.
Arguably the only similarity is that Metals X still remains undervalued relative to its current fundamentals, strong balance sheet and forward prospects.
When I featured the company last year its share price was trading in the vicinity of $1.10. While it hit an eight year high of $1.65 this week, the company’s share price hasn’t made the same relative gains as most of its peers with gold producing assets in Australia.
With the assistance of commodity price support and a depreciation in the Australian dollar against the US dollar, the share prices of Australian based producers such as Northern Star, Evolution Mining, Regis Resources and Saracen Mineral Holdings have surged in the last 12 months.
When Metals X’s managing Director Warren Hallam presents at the conference today he will highlight the significant disparity between the valuations of the aforementioned companies and Metals X. Whether using metrics such as net asset valuations or enterprise value per resource ounce it appears that the company’s share price is well underdone.
As management concedes, Metals X is arguably paying the price for being a diversified play with exposure to both precious and base metals. Unfortunately, history will show that unless there is strong synchronised support for both precious and base metals it is difficult for multi-commodity players such as Metals X to trade at fair value.
This has been evidenced even in the blue-chip arena with BHP Billiton spinning off South32. Don’t be surprised if Metals X separates its precious metal and base metal businesses, particularly now that the acquisition of Aditya Birla’s Nifty copper project appears a formality.
Analysts at Hartley’s made the observation recently that Metals X was being valued purely on its gold assets. Indeed, this is a strong part of its business and as management flagged this time last year 2017/18 should see the company increase its production rate from 220,000 ounces per annum to more than 400,000 ounces per annum.
The company’s Renison tin mine is often forgotten, but as management highlighted it is one of very few, if not the only listed tin producer in the western world. With a resource of 12.9 million tonnes it could remain in production for another 18 years which would take its overall life to more than 60 years.
Metals X also provides exposure to nickel through its Central Musgrave project which will benefit at a cost level from cobalt credits, a commodity that is likely to experience a similar surge to lithium in coming years given its applications in long life batteries and new age products.
Moving to copper, Hartley’s is of the view that the acquisition of the Nifty copper mine is possibly the best deal the company has done so far. Given the success the company has had in building a strong portfolio of gold assets through acquisitions this suggests that the addition of Nifty is an outstanding development for the company, and one that hasn’t been reflected in the share price.
Hartleys believes that Metals X has effectively acquired a copper mine with a life of more than five years for nothing, and at the same time significantly increased its cash position by circa $70 million.
In discussions with management they pointed to several aspects of the Nifty project where value could be added, suggesting that earnings from the project could be significantly stronger than they appear to be on face value.