Almonty Industries — Update 10 March 2016

Almonty Industries — Update 10 March 2016

Almonty Industries

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Almonty Industries

APT price rebound key, finances bolstered

Q116 results

Metals & mining

11 March 2016

Price

C$0.27

Market cap

C$24m

C$1.35/US$

Net debt (C$m) at 31 December 2015

45.1

Shares in issue

87.1m

Free float

66%

Code

AII

Primary exchange

TSX-V

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

12.5

3.9

(59.7)

Rel (local)

2.5

1.0

(55.9)

52-week high/low

C$0.86

C$0.23

Business description

Almonty Industries is an independent tungsten producer, with two operating mines – Los Santos in Spain and Wolfram Camp in Australia – and the development-stage Valtreixal tungsten-tin project in Spain. The company produced 91kmtu of contained WO3 in FY14 and 98kmtu in FY15.

Next event

Interim results

May 2016

Analysts

Tom Hayes

+44 (0)20 3077 5725

Charles Gibson

+44 (0)20 3077 5724

Almonty Industries is a research client of Edison Investment Research Limited

The present weakness in tungsten (APT) prices continues to be reflected in Almonty’s financial results, against a backdrop of steady production, improving costs and corporate efforts to strengthen its balance sheet. Alongside its corporate activity, Almonty is progressing optimisation of its Wolfram Camp Mine (WCM) to bring costs in line with Los Santos’s, as well as progressing development of its Sangdong asset (commissioning is expected in 2017). With APT prices at 10-year lows, it is clear a rebound in prices is the key for Almonty emerging as the pre-eminent global tungsten producer and maintaining itself as a going concern.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

09/13

18.3

0.6

1.6

0.0

16.8

N/A

09/14

29.6

9.9

25.4

2.6

1.1

N/A

09/15

36.1

(20.9)

(40.4)

0.0

N/A

N/A

09/16e

37.1

(3.7)

(4.3)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

February 2016 APT prices firming as costs decline

We note that European APT prices at 19 February show a slight improvement, averaging US$170/mtu. This is still a way off our FY16 average APT price assumption of US$250/mtu, which we will revise if there are no further significant price improvements by the end of Q216. All-in cash costs at Los Santos for Q116 were US$124/mtu and at WCM averaged US$465/mtu. Almonty states it may suspend operations at WCM if APT prices remain at current levels.

Finances strengthened, supply agreements extended

On 6 January Almonty announced entering into new financing agreements totalling C$28m (US$20.8m), providing sufficient capital to service its near-term debt obligations (see page 2). The company has also agreed extensions to its off-take agreements at Los Santos and Panasqueira – both for five years – providing the company with security over future revenues.

Valuation: Re-stated at the Q1 stage

We have adjusted our model for Almonty’s FY15 results. At the Q1 stage we retain all our existing production and valuation assumptions (see our September 2015 note Robust Q315 results despite weaker APT. Our sum-of-the-parts valuation remains C$1.26/share. Our base-case APT price assumptions average US$250/mtu in FY16, US$300/mtu in FY17 and US$350/mtu in FY18. We maintain our conservative stance on the near- to medium-term operational and cost improvements at WCM. As previously stated, Sangdong adds considerable value at a 10% discount rate and assuming a 50/50 equity/debt funding split. Overall, we continue to believe that Sangdong’s attractive economics coupled with a relatively large and high-grade resource base makes the project a valuable addition to Almonty’s asset portfolio, especially given the current commodity price downturn that favours exposure to low-cost assets.

Financials

On 6 January Almonty announced it had secured additional debt facilities totalling C$28m, comprising C$18.9m (US$14m) for an expansion of its existing guaranteed loan agreement and C$9.5m (US$7m) relating to a working capital loan agreement with UniCredit Bank. At the end of Q116 Almonty’s net debt position was C$45.1m, which has now increased for the above debt facilities, by C$28m, to give a provisional total for its debt funding facilities of C$73m. This compares to our end FY17 net debt forecast of C$57m.

Most of the company’s debt is held under instruments with maturities between now and 2019; the first matures in July 2016 and relates to an un-secured C$1.6m loan with Spanish Banks.

If APT prices do not improve from current levels, then our FY17 net funding requirement rises to C$69m.

Almonty announced the completion of its acquisition of Woulfe Mining on 11 September 2015. We have now included the 34.8m new Almonty ordinary shares that were issued in connection with this transaction in our model, which now total 87.1m. Almonty acquired all the outstanding shares in Woulfe paid for purely in shares at a ratio of 1 Woulfe share per 0.1029 of an Almonty share.

Exhibit 1: Financial summary

C$'000

2013

2014

2015

2016e

Year end September

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

18,341

29,609

36,142

37,118

Cash cost of Sales

11,400

10,287

37,743

22,183

Gross Profit

6,941

19,322

(1,601)

14,935

EBITDA

 

4,138

16,109

(7,940)

9,185

Operating Profit (before except.)

691

11,499

(16,485)

1,757

Exceptionals

0

0

0

0

Other

0

0

0

0

Operating Profit

691

11,499

(16,485)

1,757

Net Interest

214

443

1,404

2,464

Profit Before Tax (norm)

 

602

9,893

(20,910)

(3,729)

Profit Before Tax (FRS 3)

 

602

9,893

(20,910)

(3,729)

Tax

0

0

0

0

Profit After Tax (norm)

602

9,893

(20,910)

(3,729)

Profit After Tax (FRS 3)

602

9,893

(20,910)

(3,729)

Average Number of Shares Outstanding (m)

37.0

38.9

51.8

87.0

EPS - normalised (c)

 

1.6

25.4

(40.4)

(4.3)

EPS - normalised and fully diluted (c)

1.6

25.4

(40.4)

(4.3)

EPS - (IFRS) (c)

 

1.6

25.4

(40.4)

(4.3)

Dividend per share (c)

0.0

2.6

0.0

0.0

Gross Margin (%)

37.8

65.3

-4.4

40.2

EBITDA Margin (%)

22.6

54.4

-22.0

24.7

Operating Margin (before except.) (%)

3.8

38.8

-45.6

4.7

BALANCE SHEET

Fixed Assets

 

35,921

63,952

108,984

103,583

Mine development

12,690

26,554

88,136

60,202

PP&E

12,168

18,074

0

16,414

Deferred tax asset

3,025

3,569

4,036

4,036

Tailings inventory

7,409

14,514

15,410

21,529

Other

629

1,241

1,402

1,402

Current Assets

 

6,202

24,164

8,543

(6,516)

Inventories

2,510

6,648

4,076

2,396

Receivables

2,341

1,980

2,989

3,012

Cash

1,083

14,916

866

0

Other

268

620

612

612

Current Liabilities

 

(10,502)

(17,193)

(32,578)

(26,207)

Payables

(5,456)

(6,733)

(15,453)

(9,082)

Short term borrowings

0

(6,332)

(13,634)

(13,634)

Other

(5,046)

(4,128)

(3,491)

(3,491)

Long Term Liabilities

 

(4,317)

(23,758)

(35,947)

(35,947)

Long term borrowings

(3,721)

(22,296)

(30,801)

(36,398)

Other

(596)

(1,462)

(5,146)

451

Net Assets

 

27,304

47,165

49,002

34,912

CASH FLOW

Operating Cash Flow

 

378

8,661

1,408

(7,133)

Capex

(5,841)

(7,621)

(12,783)

(6,269)

Acquisitions/disposals

0

112

0

0

Equity financing

0

(218)

0

0

Dividends

0

(1,001)

0

0

Other

(284)

(50)

(197)

0

Net Cash Flow

(5,747)

(117)

(11,572)

(13,401)

Opening net debt/(cash)

 

(1,056)

2,638

13,712

43,569

Other

2,053

(10,957)

(18,285)

0

Closing net debt/(cash)

 

2,638

13,712

43,569

56,970

Source: Company accounts, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Altamir — Update 9 March 2016

Altamir

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