Alphamin Resources — Still leading the pack

Alphamin offers rare exposure to a metal that both Rio Tinto and the Massachusetts Institute of Technology (MIT) regard as the most likely to benefit from the electrification of the world economy. Having successfully ramped up its Mpama North mine at Bisie in the Democratic Republic of the Congo (DRC) to full production in 2019–20, at a time when the tin price was enjoying one of its biggest bull markets in decades, AFM is already debt free and making distributions to shareholders. Its second mine, at Mpama South, will increase AFM’s output by c 50% in FY24 to approximately 6.7% of the world’s total in a similarly non-energy-intensive fashion.

Whereas in the past we have valued Alphamin as the sum of its two major assets, Mpama North (including cash) and Mpama South, in this report, for the first time, we have fully consolidated Mpama South into our full financial model. In the wake of this change, our consolidated valuation of Alphamin is US$1.06/share, or C$1.44/share, based on the present value of future dividends potentially payable to Alphamin shareholders over the life of operations (as currently perceived), discounted at a rate of 10% pa, notwithstanding DRC country risk. Of this total, approximately two-thirds of the full valuation may be attributed to Mpama North and approximately one-third to Mpama South. Within this, we are forecasting earnings to more than double in FY24, by which time we expect Mpama South to have reached steady-state production and the tin price to have reached its long-term equilibrium price of US$31,651/t (cf US$25,305/t currently). At Alphamin’s current share price, this suggests a prospective P/E ratio falling to approximately 5.1x in FY24–30e. At Edison’s valuation of the company (see Exhibits 18 and 19), it suggests a P/E ratio of 6.8x in FY24–30e, but that its current share price is low relative to its valuation for nine years until FY32. In the meantime, Alphamin is one of those rare companies that is profitable, but whose dividend yield is forecast to be higher than its P/E ratio. On a relative basis, Alphamin is priced at valuation multiples that are cheaper than the averages of its peers in 10 out of 12 (or 83%) of valuation measures. On a discrete basis, it is cheaper than its peers in 27 out of 30 (or 90%) of valuation measures.

Edison’s valuation of C$1.44/share changes by ±17.2% (or C$0.25/share) for every ±10% that the tin price moves from US$31,651/t. Alternatively, Alphamin’s share price of C$0.93 can be said to discount a long-term real tin price of US$25,165/t, which is 0.6% below the currently prevailing three-month price of tin of US$25,305/t and 20.5% below Edison’s long-term price of US$31,651/t. In the event of exploration success extending the life of operations at Bisie indefinitely, our valuation of Alphamin rises to C$2.06/share (currently), and to C$2.36/share in FY27.

Net cash on Alphamin’s balance sheet amounted to US$10.9m as at end-Q223 (including lease liabilities). Over the course of the next two quarters, we estimate that (subject to the tin price) Alphamin should generate c US$30m per quarter pre-tax from operations. It should then pay out c US$11m in taxes and a further c US$20m in capex. It will then have one further interim dividend payment of US$28m in Q323 plus any dividends from the group to minorities. All other things being equal therefore, we estimate that Alphamin will move from a net cash position as at end-Q223 to a small net debt position of c US$8.5m as at end-Q323, before recovering slightly to a near break-even position by the end of the year. Thereafter however, we expect Alphamin to be strongly cash generative – as before, but with the added benefit of production from Mpama South. In this context, we assume that Alphamin will wish to retain c US$70m in cash on its balance sheet as at end-FY24 and US$40m thereafter (which is the basis of our future dividend forecasts).

Alphamin owns (84.14%) and operates the Bisie tin mine in the North Kivu province of the DRC. Bisie comprises the Mpama North underground mine with an average resource grade of c 5.4% tin (the world’s highest and equivalent to a 22.3g/t or 0.72oz/t gold grade) and the nearby Mpama South project, which is under construction. Accounting for c 4% of the world’s mined tin supply, Mpama North is the second largest tin mine in the world outside China and Indonesia. Within the next year, its second mine, at Mpama South, will increase AFM’s output by c 50% to approximately 20,000t of contained tin per year, or c 6.6% of the world’s total, in a similarly non-energy-intensive way.

The tin-bearing gossan on the Bisie Ridge was discovered in 2002 whereupon it became the subject of widespread small-scale artisanal mining. Alphamin’s interest began in 2011, when it acquired an initial 70% interest in the Bisie Tin Project from Kivu Resources, which it later increased to 100%.

Prior to Alphamin’s involvement there had never been a formal mineral reserve or resource delineated at Bisie. However, this changed when, in November 2013, the company reported a maiden NI 43–101 compliant inferred mineral resource of 4.0Mt at a 3.5% tin (Sn) grade containing 141,200t of contained tin (at a 0.25% Sn cut-off), with the best assay results occurring in the four deepest holes drilled. Copper, lead, zinc and silver were also present.

An initial definitive feasibility study (DFS) was completed in February 2016, which estimated that the project could produce 9,000t of tin per year over an estimated 10.5 years after an initial US$119.2m in capital expenditure. The DFS was subsequently updated and optimised to reflect front-end engineering and design and control budget estimates, such that it ultimately projected production of 152,300t of tin over a 12-year life with payback in 17 months after an initial US$126.1m in capital expenditure, resulting in a project NPV8 of US$402.2m and an IRR of 49.1%.

After a final investment decision, Alphamin secured an US$80m senior secured, non-revolving credit facility in November 2017 with Sprott, Barak and Tremont, to be provided to Alphamin Bisie Mining (ABM) – the owner of Bisie. Construction at Bisie commenced later the same year and, after slightly more than a year’s construction, plant commissioning commenced in early 2019. Just prior to plant commissioning however, it was decided to change the mining method at Mpama North to one of cut and fill, after a management review into the suitability of sublevel caving in the light of prevailing rock conditions. The change resulted in revised reserves and a revised mining schedule in addition to adjustments to operating cost assumptions, mined grades and metallurgical recoveries. Nevertheless, the mine declared commercial production later the same year, in Q319.

While Bisie was ramping up to full production, on 30 October 2019, the logistically important Maiko Bridge at Waine-Rukula collapsed. Prior to the collapse, concentrate produced at Bisie was trucked over the Maiko Bridge en route to Kisangani and, from there, to Gerald Metals depots (based in Kampala, Uganda) and then on to Mombasa, Kenya. As a result, Alphamin incurred additional logistical costs in Q120 relating to the sale of concentrate plus additional costs (eg hiring a helicopter from South Africa to transport material across the Maiko river). In consequence, on 9 December 2019, the company accepted a trader advance of US$12.6m from the company’s offtake partner, Gerald Metals, to assist with cash flow. The advance took the form of a spot contract for the sale of US$20m of tin concentrate and was ostensibly extinguished in Q120 and then fully extinguished in Q320 after the delivery of the associated lots to the designated delivery point in Uganda.

On 15 May 2020, Alphamin concluded a private placement of US$31m, which was applied to reduce its debt balance. Concurrently, it signed an amended and restated credit agreement with improved terms. Finally, in May 2020, it settled certain third-party indebtedness of ABM, the owner of the Bisie tin mine, by the issue of Alphamin shares in consideration for a temporary loan due by ABM. Subsequently, it secured the required board and shareholder approvals from ABM to convert this ABM loan into new shares of ABM, which increased Alphamin’s equity ownership of ABM to 84.14%, with South Africa’s Industrial Development Corporation’s interest then being diluted to 10.86% and the government of the DRC’s interest remaining at 5%.

With the exception of some early logistical disruptions (eg along the trucking routes between Kenya and Uganda), it is worth noting that Africa, in general, and Alphamin, in particular, were barely affected by the coronavirus pandemic of 2020–22, with management reporting that East African countries reacted in a manner appropriate to the crisis that was proportionate to the risks and that the logistical supply routes between the DRC and Mombasa continued to operate in an orderly and efficient manner. As a result, mining at Bisie continued, to all intents and purposes, without disruption, allowing the company to become net cash positive in Q321 and to pay a maiden dividend to shareholders for FY21 early in FY22. It subsequently fell into a pattern of declaring interim and final dividends during FY22 (all of which have been at a level of C$0.03/share to date).

To manage fine and ultrafine tin losses in circuit (identified at the time of the plant’s commissioning in 2019), a decision was taken to install a fine tin recovery circuit in mid-2021, which acted to improve both the plant’s metallurgical recoveries (by c 5.5 percentage points) and its throughput rate by up to 10% (in conjunction with a process of debottlenecking).

In early March 2022, Alphamin announced a maiden resource at its second major exploration target after Mpama North, called Mpama South, plus the results of the preliminary economic assessment (PEA). The PEA indicated that a mine at Mpama South could produce 7,232t contained tin per year from 468kt ore processed at a grade of 2.21% and a metallurgical recovery of 70% for a capital outlay of US$115.97m and an all-in sustaining cost (AISC) of US$15,188/t (at a tin price of US$40,000/t). Later that same month, Alphamin announced a resource upgrade at Mpama South and a decision to proceed with developing the new project.

Notwithstanding the near halving of the tin price in the second half of 2022, work commenced on the new mine. Underground development remains ongoing and on schedule and, as of August 2023, development progress is as follows:

As such, the Mpama South development project remains forecast to be substantially complete within its budget of US$116m and within its expected timeframe. 

The Bisie Tin Project is located approximately 60km north-west of Walikale centre and 180km north-west of Goma, the capital of the North Kivu province, in the eastern DRC.

Among other things, the area is characterised by dense forest, deeply weathered soils and high rainfall.

Bisie is the only commercial mine of scale in the North Kivu province. It is technically simple and occupies a small footprint. Out of necessity, it has to be self-reliant. Nevertheless, procurement to site has not proved to be a problem. In the rainy season (at its height in Q4), this can involve a three-month round trip; however, the average journey time is typically measured in days. Moreover, critical parts can be flown into the mine, if necessary, within seven days. Plant spares are typically sourced from South Africa and engineering spares from Sweden, while the jig (the essential gravity separating component of the plant) is made in Australia. Otherwise, the mine requires no bulk consumables and few reagents. Cement is sourced within the DRC and all other supplies from the Southern Africa region.

While there has been an upsurge of violence in the North Kivu region in the past 12 months – variously between the local population, M23 Tutsi-led rebels (largely seen as a proxy force backed by Rwanda), East African Community (EAC) regional forces, the UN peacekeeping mission (MONUSCO) and regular Congolese forces (possibly backed by Russia’s Wagner Group) – these problems are largely restricted to the border areas between the DRC, Uganda and Rwanda, some 300km to the east of Bisie as the crow flies (note: it is almost 1,000km via the only road that links the two through near impenetrable jungle) and in distinct ‘hot spots’ from which the mine is protected by its remoteness and obscurity, which, together with the region’s lack of infrastructure, form a very effective security moat around it. Moreover, since tin concentrate has a much higher volume per unit value of metal contained than gold concentrate, it is relatively unattractive as a target for either rebel activity or smugglers. As a result, management reports that there have been no artisanal miners located on the property since being asked to leave by the provincial government. In addition, recent consumer protection and anti-foreign corruption legislation both in the United States and the wider world has made it significantly harder for smelters to accept ore from non-accredited or unofficial sources. As well as offering relatively low rewards and relatively high logistical hurdles therefore, tin concentrate is also increasingly hard for smugglers to sell into the official market.

AFM has conducted a detailed mapping exercise across the permits that includes geological and structural interpretations from an airborne geophysical campaign and full details of the geology at Bisie may be found in the NI 43–101 technical report lodged by Alphamin on Sedar.com on 13 February 2019.

In broad terms however, the mineralisation at Mpama North consists of a number of narrow veins, blocks or dispersions of cassiterite hosted in a chlorite schist. The tin mineralisation is also strongly associated with copper, introduced in late-stage fractures. For the purposes of its resources and reserves, the mineralisation is defined in three distinct vein systems, namely the Hanging Wall, Main and Footwall veins. The Main vein accounts for 95% of the resources at Mpama North and has thicknesses ranging from 2–22m. The Hanging Wall vein occurs 4–20m above the Main vein, while the Footwall vein occurs 2–12m below the Main vein. The Hanging Wall and Footwall veins are restricted to the northern and southern areas of the deposit, respectively.

Mining at Bisie is fully mechanised and trackless, using a small fleet and remotely operated load, haul, dump (LHD) machines. Host rock is described as ‘competent’ or ‘very competent’, even in the shear zone, with the possible exception of where it is in contact with the hanging wall. It is also not a wet mine. The decision to transition from a sublevel caving (SLC) mining method to long-hole stoping (LHS) was made to improve safety and reduce the technical risks associated with SLC in the underground environment encountered at Mpama North as well as to increase volumes mined and improve the underground flow of material. The associated NI 43–101 technical report was compiled by Sound Mining Solutions. In general terms, the life of mine (LOM) schedule under the optimised 2019 mine plan (ie the one management is broadly following) brought forward the production of both ore tonnes and higher grades within the life of the mine, thereby improving cash flows (all other things being equal). A comparison of the two LOM plans (along with actual outcomes in the first three years of mining) is as follows:

Overall, the optimised 2019 LOM schedule was calculated to deliver cumulatively 28.1kt more tin contained in an equivalent run-of-mine (ROM) volume to the plant in the first 10 years of operation compared with the previous LOM schedule. It also included a portion of inferred resources (which the original 2017 LOM schedule did not), equating to 13.6% of total tonnes mined, albeit less than half of these tonnes were scheduled in the first eight years of operations. As a result, it had a longer ‘tail’ and lower volumes in the final years than the previous schedule. However, Alphamin management’s plan is that production in these years would be augmented via exploration success at both Mpama North (underground) and Mpama South (see below).

In addition, in pursuit of further optimising overall tin processing recoveries to above the targeted level of 72%, the company installed a fine tin recovery circuit that is designed to improve recoveries by c 5.5 percentage points above that originally forecast over the life of the operation.

With a specific gravity of c 7 (akin to most metals in their elemental form and only slightly below that of pure tin itself), cassiterite has proved ideal for concentration via gravity separation and has been the principal source of tin ore since ancient history. In conception, the processing plant at Mpama North uses just such conventional gravity separation methods for the recovery of tin at Bisie into a c 60% concentrate. Originally constructed with a throughput capacity of 360ktpa, the plant was subsequently upgraded by a series of minor debottlenecking exercises to increase its capacity by c 10%.

The process starts with the crushing of the ore, with the coarse material accounting for 75% of the overall crushed material and the fine material accounting for 25%. The coarse material is then recovered using conventional jigs. Fine material is recovered via the fine tin recovery circuit down to a size of 10μm. The fine tin recovery circuit was commissioned in early to mid-2021 and uses Multi Gravity Separators, set up in rougher-cleaner configuration, to treat a 20tph process flow stream from the existing plant’s tailings running at a grade of 0.8–1.1% tin. The circuit produces a concentrate containing 45–55% tin, which is then blended with the concentrates from the main gravity concentration plant to produce a final concentrate containing c 60% tin. The tin-rich concentrates are then thickened, filtered and exported to a smelter for refining.

Power at Bisie is supplied from a light fuel oil (LFO) diesel power station on site, which uses approximately 0.32 litres of LFO per kWh produced. Cables link the diesel power station to the process plant substation and an 11kV power line links the mine with the diesel power station.

The required water for the project is sourced from existing mine water supplemented by supply from nearby springs and rivers.

In order to gain day-to-day access to the site, AFM constructed a 34km access road from the project area to the village of Logu through rugged terrain and dense forest to link Bisie to National Route 3 (N3), which runs between Kisangani and Walikale. In general, fuel is transported to site in standard fuel tankers, carrying 36,000 litres per trip, while concentrate is exported in sealed containers holding c 24t per container on standard tri-axle mechanical trailers.

Formal reserves in mining comprise the proven and probable categories. For the purposes of the below analyses, Edison has resurrected a former category of resources, denoted ‘possible’, for the purposes of calculating the required conversion of existing resources into reserves in order to render Alphamin’s most recent publicly disclosed mining schedule at Mpama North (in June 2022) and Edison’s extended mining schedules at both Mpama North and Mpama South achievable. Readers should be aware that this ‘possible’ category of reserves no longer exists and has been used solely as a device for these purposes.

As at end-June 2019, mineral resources at Bisie were estimated to be 220.8kt tin contained within 4.8Mt ore at a grade of 4.60%. Mineral reserves were updated as at 31 December 2019 to 133.38kt Sn contained within 3.33Mt ore at a grade of 4.01% to take account of the revised LOM plan following a change in mining method from the previous sublevel caving (SLC) mining method to open stoping with hydraulic backfill (LHS). The decision to transition from one to the other was made to improve safety and reduce technical risks associated with SLC in the underground environment at Mpama North. The LHS mining method has lower levels of dilution than the SLC mining method, which positively affects mined grades as well as reducing waste tonnes. However, it also requires more pillar support than SLC and thus has a lower extraction rate. As a result, a higher cut-off grade of 1.6% tin was used in the updated mineral reserves estimate, compared to 1.4% used in the 6 February 2017 estimate.

On 3 August 2022, Alphamin announced an updated resource estimate at Mpama North. A summary of the updated resource (dated June 2022) compared with its previously reported resource (dated June 2019) is as follows:

While, at first glance, tonnages and contained in-situ tin have both declined since Mpama North’s June 2019 mineral resource statement, the most notable feature of the update was the change in the tin grade. Overall, the tin grade of the resource increased by 16.4% since June 2019 (up 65.4% in the inferred category of resources), while the overall grade of reserves (excluding possible reserves) has increased by a comparable 15.7%, from an already high 4.01%, to 4.64% (equivalent, in terms of the value of contained metal, to a gold grade of 19.2g/t or 0.62oz/t).

June 2022 resources and reserves were (necessarily) stated net of mining depletion. In this case, we estimate that mining has extracted 1.15Mt of ore between June 2019 and June 2022 at a grade of 3.94% Sn. This would imply that Mpama North’s resource tonnage is almost exactly where it would have been expected to be, but that its reserve tonnage has increased materially. Once again, however, the most striking feature of this analysis is the concurrent, and material, increases in both resource and reserve grades, as shown below:

As a consequence, Alphamin was able to update its prior LOM schedule for Mpama North, as follows:

Readers should note the reconciliation of the tonnage, grade and contained tin inventory expected to be mined under Alphamin’s June 2022 mining schedule with the reserves calculated by Edison (including its ‘possible’ category) in Exhibits 3 and 4. Once again, although the headline tonnage to be mined appears to have fallen in June 2022 compared with December 2019, it has, in fact, increased on a like-for-like basis, once depletion has been taken into account. In this case, the increase in underlying tonnage to be mined of 0.37Mt equates to approximately one additional year of mining. However, the striking feature of this analysis is the extent to which the grade of the tin mined over the course of the whole schedule has increased. At the time, this caused us to increase our assumption of the grade of material to be mined over the life of the mine (relative to the 2019 plan) by a (simple) average of 30.5% from FY24, as shown, by year, in Exhibit 6, below.

While we forecast that the grade in the earlier years of operation would remain approximately unchanged relative to its December 2019 LOM plan, in the light of Alphamin’s updated June 2022 LOM schedule totals, we believed that it would be materially higher in the later years of operation as grade increases with depth, such that the average over the life of the mine would be 4.78%.

We note that, while the cut-off grade associated with the LOM schedule was reduced, the fact that this was not the source of the increase in mineable tonnage was attested to by the simultaneous increase in the grade of material to be mined. At the time, the difference between reported reserves (of 2.62Mt at 4.64% Sn) and the LOM schedule (3.23Mt at 4.78% Sn) could be rationalised on the assumption that 0.61Mt of resources in the inferred category (ie substantially all of the resources in the inferred category) were to be mined at a grade of 5.44% Sn (cf a resource grade of 7.56% Sn – see Exhibits 3 and 4).

Subsequently, in recognition of its recent exploration successes and the prospectivity of the region, we have opted to assume that Alphamin is capable extending its life of mine by an additional four years relative to its June 2022 mine schedule to FY36 (see Exhibit 12).

Mpama South is located approximately 750m to the south of Mpama North. Alphamin declared a maiden resource at Mpama South in March 2022 and has subsequently upgraded it three times, in March 2022, June 2022 and February 2023. A graphical depiction of the evolution of Alphamin’s resource at Mpama South, by resource category, is provided below:

Of note is the initial focus on expanding the resource (in terms of its size), followed by the subsequent upgrading of the resource (in terms of its categorisation, ie inferred resources upgraded into indicated ones), all achieved at essentially an unchanged overall tin grade.

As at 7 February 2023, Alphamin’s updated resource at Mpama South was as shown below:

At the time that it announced a maiden resource at Mpama South, in March 2022, Alphamin also disclosed a life of mine plan showing 2,068kt run-of-mine tonnes at an average grade of 2.21% Sn (see Exhibit 10, below). As such, run-of-mine tonnes equated to 74% of resource tonnes, while the average mined grade was 87% of the resource grade. Applying the same percentages to the updated resource at Mpama South (above) implies 4.5Mt of run-of-mine ore (ie 9–10 years of mine life) at an average grade of 2.12% Sn. However, the resource at Mpama South also remains open at depth with good disclosed intersections at the last drill line at depth. As such, we believe that it is valid to impute additional years of life to the mine at Mpama South and, in this case, we estimate an additional five years of life – to take the overall life of the operation to 15 years – is appropriate. We note that Alphamin’s reserves will ultimately need to increase to very nearly the size of its current resource, in terms of contained tin (albeit at a slightly lower grade), in order to achieve this goal. However, in the light of Alphamin’s recent exploration successes at both Mpama North and Mpama South, we believe that this should be achievable. In addition, it will have at least the initial 9–10 years of the life of the operation in order to achieve it. As at Mpama North, above, readers should note that the ‘possible’ category of reserves no longer exists and has been included in Exhibit 8 as a device for demonstrating the extent of exploration success required in order to reconcile with Edison’s extended LOM production schedule at Mpama South (see Exhibit 12). Within this context, extensional drilling down dip and in the shallower northern and southern portions of Mpama South has the capacity to extend known mineralisation at Mpama South, which is still open in multiple directions. High-grade drillholes around the peripheries where mineralisation remains open are highlighted in the exhibit below, which demonstrates the remaining prospectivity for resource expansion at Mpama South.

However, for 2023, management’s focus will primarily be directing mine construction and commissioning efforts, while exploration drilling will be curtailed and, instead, aimed at further field work campaigns to support future programmes. As a result, the focus for 2023 has been a regional greenfields campaign (see ‘Regional exploration’ below).

At the same time as announcing its maiden resource (March 2022), Alphamin announced the results of a PEA at Mpama South. The PEA encompassed a number of mining, metallurgical, environmental and regulatory studies, which together demonstrated the potential to expand production at Bisie by leveraging the infrastructure at Mpama North (eg power, water, site access, underground infrastructure and personnel) to build a second mine and dedicated second lookalike processing plant and mine portal at Mpama South. The main findings of the PEA were as follows:

The PEA was necessarily preliminary in nature. It included, for example, a portion of the inferred mineral resource that ordinarily would be regarded as too speculative geologically to be considered mineral reserves. In this case, however, we calculated that the required conversion of contemporary resources to reserves to achieve Alphamin’s desired processing rate over the then seven years of operations was 65% (of contained tin).

Taken together, Alphamin’s consolidated resources at Bisie (on a 100% basis) are as follows:

According to the International Tin Association’s Tin Industry Review 2020, Mpama South’s maiden resource grade of 2.54% (prior to upgrade) ranked as the second highest publicly reported CRIRSCO tin mineral resource grade globally and one of the largest in terms of contained tin.

Readers should also note that, at current prices, Alphamin’s combined resources at Bisie are equivalent to an in-situ gold resource of 4.6Moz, which would be considered very large in the context of all but the largest gold majors.

Drilling to date at Bisie has been designed to achieve three goals:

Alphamin regards the whole of the 13km Bisie Ridge as being highly prospective and, over time, it has identified a number of targets there. The full length of the ridge was the subject of a follow-up geochemical investigation in 2021 confirming tin and other base metal anomalies over the majority of its length. Exploration intensified from Q322 to test highly anomalous soil, geophysical and structural targets identified the previous year, while a 10,000m Phase 1 diamond core programme has now effectively been completed. Six high-priority drill areas were initially identified with signatures similar to those of Mpama North and Mpama South. However, only a fraction (c 20%) of the ridge has been intensively drill tested to date. Moreover, only c 25% of assays from the Phase 1 diamond core programme have been returned from the independent laboratory to date. Once received and analysed, assay results will support a fuller investigation into the regional setting, along with data from the ongoing geophysical downhole surveys, structural investigations and mapping, thereby enabling a re-focused exploration programme.

To date in FY23, execution of the extensive prospecting coverage has gathered momentum with the completion of first pass stream sediment sampling, grab sampling and geological mapping for the first time across the entirety of Alphamin’s mining licence and two prospecting licences. Additionally, follow-up ionic soil sampling and bulk sampling (20kg samples) were completed over the most anomalous areas on the back of the first phase results. Certain areas warranted follow-up exploration efforts based on these results and the next phase of exploration will use more intensive methods like trenching and pitting over the identified anomalies. The trenching and pitting will in turn assist in directing future drilling efforts. Increased exploration activity and expenditure is planned for 2024, after the successful completion of the Mpama South expansion project.

In addition, the company has an ongoing programme of underground drilling at Mpama North to both expand and extend the current tin resource. Mpama North is open down dip, as well as along strike below Level 9. Development drilling in these areas has the potential to continue to increase the resource base, while in-fill drilling has the potential to upgrade inferred mineral resources into the indicated category and, from there, into reserves.

As stated previously, in recognition of its recent exploration successes and the prospectivity of the region, we have opted to assume that Alphamin is capable of extending its life of mine by an additional four years relative to its June 2022 schedule at both Mpama North and Mpama South, giving rise to the combined LOM schedule presented below:

The tin price over the past three years has been heavily influenced by the COVID-19 pandemic and accentuated by speculative flows of funds. Initially, supply was hit and demand stimulated as key producers in South-East Asia were adversely affected by lockdowns at the same time as locked down populations worldwide spent lavishly on consumer electronic products. That pattern reversed in 2022 at the same time that investment fund positioning switched from a record long position on the London Metal Exchange in March 2022 to a record short position in October 2022. Consequently, the tin price has declined by almost exactly 50% from its high of US$48,865/t in early March 2022 to US$25,305/t currently, as an environment of supply constraints, easy credit conditions, low interest rates and contained inflation has given way to one of inflation, rising interest rates and slowing economic growth worldwide, including China (see Exhibit 13, below).

Notwithstanding its recent declines, however, in the longer term, tin remains the best performing of 18 metals and minerals since 1 January 2002:

However, while the tin price has seemingly stabilised at approximately current levels, we do not believe that it is sustainable at such low levels in the medium to longer term. In the short term, output from one of the world’s largest primary producers (the Wa state in Myanmar/Burma) has been curtailed in order to allow a major audit of all tin mining and processing operations with the aim of resolving the interlinked problems of resource depletion, environmental damage and worker discontent. While there are question marks over the effectiveness of the implementation of such a policy, China’s imports of tin concentrates from Myanmar fell by 33% over the first four months of 2023 relative to 2022 and its smelters are reported to be struggling with a shortfall of tin concentrates. As a result, refined tin production has suffered year-on-year with, among other things, Guangxi China Tin (the world’s sixth-largest tin producer) recently putting in place a 40–50 day maintenance break.

In the meantime, the threat of export restrictions to stimulate a higher value-added downstream industry remains in place in Indonesia, at the same time as China is trying to accelerate its purchases of ingots in order to pre-empt any changes in Indonesian economic policy. In the longer term, the International Tin Association estimates that the sector will require approximately US$1.4bn in near-term investment to deliver an additional 50,000t more refined tin per year by the end of the decade (out of a refined tin market of c 380,000t globally per year, ie c 13%) if countries are to come remotely close to achieving their carbon reduction commitments.

Since 1945, the real price of tin has shown a statistically significant relationship with the real oil price (see Exhibit 15, below).

The qualitative justification for the correlation relates to the energy intensity of the smelting and refining processes for tin, which tend to take the form of either electrolytic purification or, more typically, smelting in a traditional furnace. Hence, energy costs make up a large proportion of total costs and so determine the absolute level of the cost curve. Should metal prices deviate materially from their oil price correlation for material periods of time therefore, it results in smelters being exposed to either excessive profits or losses, which in the case of the former should result in an increase in investment, supply and/or substitution, and in the case of the latter should lead to business failures and a decrease in investment. As a result, between 1945 and 2022, the Pearson Product-Moment (correlation) coefficient between the real tin price and the real oil has been 0.55 (in a scale between -1 and +1), which is statistically significant at the 5% level for the number of data points employed in the analysis (ie there is less than a 5% probability that this correlation occurred by random chance):

It should be noted that Alphamin itself is an exception to the generalisation about the energy intensity of tin production, given that its gravity and water-based concentration process is extremely efficient and not at all energy intensive. Nevertheless, based on a long-term real oil price of US$70/bbl (which is currently being used by Edison’s oil and gas team), and in the aftermath of the recent price volatility, we have now adopted an updated long-term real tin price of US$31,651/t (±US$10,982/t) in line with the historical regression analysis.

A summary of Edison’s cost assumptions for both Mpama North and Mpama South – including justifications – is shown below:

Whereas in the past we have valued Alphamin as the sum of its two major assets, Mpama North (including cash) and Mpama South, in this report, for the first time, we have fully consolidated Mpama South into our financial model.

In the light of the assumptions considered above, our consolidated valuation of Alphamin is US$1.06, or C$1.44/share, based on the present value of future dividends potentially payable to Alphamin shareholders, discounted at Edison’s customary rate of 10% per year. Approximately two-thirds of the full valuation may be attributed to Mpama North (including cash) and approximately one-third to Mpama South.

Of note, in the context of the overall valuation, is the sharp increase in both earnings and potential dividends from FY24 (as shown in the exhibit above), by which time we expect Mpama South to have reached steady-state production and the tin price to have reached its long-term equilibrium price of US$31,651/t.

As a result, we are forecasting earnings to more than double from FY22 to FY24 and Alphamin’s maximum potential dividend to in excess of 10 US cents per share. At Alphamin’s current share price, this suggests a prospective P/E ratio falling to approximately c 5.1x in FY24–30e. At Edison’s valuation of the company (see Exhibit 18, above), it suggests a P/E ratio of approximately 6.8x in FY24–30e and that Alphamin’s current share price is cheap relative to its valuation for nine years until FY32, as shown below (where the two lines cross).

Edison’s valuation of C$1.44/share changes by ±17.2% (or C$0.25/share) for every ±10% that the tin price moves from US$31,651/t. Alternatively, it can be stated that Alphamin’s share price of C$0.93 essentially discounts a long-term real tin price of US$25,165/t, which is 0.6% below the currently prevailing three-month price of tin of US$25,305/t and 20.5% below Edison’s long-term price of US$31,651/t.

Edison’s central (absolute) valuation of C$1.43/share is conducted at a discount rate of 10% per year to reflect general equity risk. Variations from this central rate are considered in the table below:

Based on maximum potential dividends payable to shareholders therefore, we calculate that an investment in Alphamin’s shares today at a price of C$0.93/share would offer investors an IRR of 18.0% on their investment over 15 years in Canadian dollar terms.

A key sensitivity for Alphamin is its exposure to exploration success. For the purposes of this valuation, we have assumed an ongoing exploration commitment at Alphamin of c US$15m pa, as Alphamin looks for its third tin deposit after Mpama North and Mpama South as well as replenishing reserves and resources to keep the existing mine operating at full capacity.

In the light of the most recent resource updates at both Mpama North and Mpama South, we now assume that production at Mpama North will continue at near full capacity until 2036 and that production at Mpama South will continue until 2038. However, in the event of exploration success extending the life of operations indefinitely, our valuation of Alphamin could rise to C$2.06/share (currently) and to C$2.36/share in FY27:

Alphamin’s operating results over the past 10 quarters are summarised in the table below:

A number of features of Alphamin’s performance over the course of these past 10 quarters are noteworthy:

With the caveat that the quarterly results of mining companies can demonstrate material volatility relative to both historical results and analysts’ forecasts, our quarterly estimates for Alphamin for FY23 are provided in the table below. At the time of writing, the three-month price of tin is US$25,305/t and, for the purposes of forecasting, we have assumed this price will prevail for the remainder of the year.

A number of features of Alphamin’s financial results are also noteworthy:

Profitable, listed tin producers are relatively rare, even globally, and producers of tin concentrate even rarer. Below is a table of companies that Edison believes reasonably represents Alphamin’s closest peers, together with a series of commonly used prospective valuation multiples (where available):