Alphamin’s Q321 financial results were released in the context of known operating results, which were announced on 4 October and are summarised in the table below relative to prior quarters.
Exhibit 1: Alphamin operating results, Q419–Q221
|
Q120 |
Q220 |
Q320 |
Q420 |
Q121 |
Q221 |
Q321 |
Change*
(%) |
Tons processed |
85,060 |
91,928 |
96,086 |
93,560 |
93,997 |
105,294 |
108,901 |
+3.4 |
Tin grade (%) |
3.5 |
4.3 |
3.8 |
4.2 |
3.8 |
3.2 |
3.5 |
+9.4 |
Contained tin (t) |
2,977 |
3,953 |
3,651 |
3,930 |
3,572 |
3,369 |
3,812 |
+13.1 |
Overall plant recovery (%) |
71 |
69 |
71 |
74 |
74 |
72 |
75.2 |
+4.2 |
Actual payable tin produced (t) |
2,119 |
2,739 |
2,563 |
2,898 |
2,611 |
2,412 |
2,832 |
+17.4 |
Payable tin sold (t) |
3,860 |
2,613 |
2,695 |
2,306 |
3,351 |
2,404 |
2,710 |
+12.7 |
Tin price achieved (US$/t) |
15,553 |
15,359 |
17,436 |
18,497 |
23,083 |
28,308 |
33,704 |
+19.1 |
All-in sustaining cost (US$/t) |
12,425 |
10,849 |
10,777 |
11,384 |
12,162 |
15,112 |
14,765 |
-2.3 |
Source: Alphamin Resources. Note: *Q321 cf Q221.
Alphamin’s underlying financial results are provided in the Exhibit 2. A number of features of both its operational and financial performance are noteworthy:
■
Plant throughput increased by 3.4% after an already impressive increase of 12.0% in Q221 (cf Q121). Moreover, despite this increase in throughput, costs were well controlled, with all-in sustaining costs (AISC) declining 2.3% quarter-on-quarter to US$14,765/t, driven by a 6.1% reduction in on-mine costs per tonne of tin sold.
■
Alphamin’s operational performance was achieved by significantly improved underground mining practices since mid-July 2021, relating to stope planning, delineation and blasting. This resulted in an average tin grade of 3.5% for the quarter, including 3.8% processed during both August and September. In addition to improved grade control, run-of-mine volumes and waste development were reported to have increased by 5% quarter-on-quarter and although this probably caused costs to increase by marginally more than we would otherwise have expected, EBITDA for the quarter of US$53.7m nevertheless fractionally exceeded prior guidance of US$53.0m, which itself represented a 55.5% increase relative to Q221.
■
Financial results were very close to our prior expectations, with the exception of a warrant charge of US$4.1m and deferred tax of US$5.1m (both of which we habitually decline to forecast on a quarterly basis). Excluding these two factors, earnings attributable to shareholders would otherwise have been 5.3%, or US$1.5m better than our prior forecasts, at US$30.1m, or 2.53 US cents per share.
■
During the quarter, Alphamin’s net debt (including lease liabilities) declined by 103.5% (or US$30.5m) from a net debt position of US$29.5m to a net cash position of US$1.0m. This performance followed a decline of US$17.0m in Q221 and one of US$11.0m in Q121.
■
Alphamin’s effective tax rate varies materially from quarter to quarter – for example, between 97.9% in Q320 and -259.4% in Q419 – not least, on account of the warrant charge discussed above. In Q321, however, if both the warrant charge and deferred taxes are excluded, the effective tax rate was 22.0% (cf our prior expectation of 25.0%). Owing to the continued rise in the tin price, however, it is possible the company’s subsidiary in the Democratic Republic of the Congo (DRC) may be subject to a superprofit tax. Superprofit taxes are triggered when the average sales price for the year exceeds the tin price used in the DRC feasibility study by more than 25%. For these purposes, in instances in which Excédent Brut d’Exploitation (an Ohada or Francophone Africa accounting concept that is analogous to EBITDA) for the year is more than 25% higher than that stipulated in the feasibility study, then a superprofit tax of an additional 20% applies, taking the effective tax rate on that incremental portion of profit from 30% to 50%. During 2021, Alphamin submitted a revised DRC feasibility study, which may result in no superprofit tax being payable. In the case of a superprofit charge being applied in FY21, management expects it to result in a possible additional tax charge of approximately US$15m (or 1.26 cents per share). Owing to the tax deductibility of superprofit tax from corporate income tax, there is a corresponding reduction in 2022 provisional tax payments, meaning the company would be cashflow tax neutral in 2022 in either case, with the cashflow impact occurring in 2023. In the medium term, however, the company expects, subject to sufficient exploration success, to submit further DRC feasibility studies that should mitigate the impact of any superprofit taxes. In the meantime, the effective tax rate for 2021 is expected by the company to fall between 21% and 30% (including utilisation of losses brought forward), depending on whether a superprofit tax is payable.
■
The minority interest reflected in Alphamin’s income statement has also proved to be of a similarly variable nature on a quarterly basis – for example ranging from 1,286.0% of net profit in Q320 to -8.9% in Q420. Again, in large part, this apparent variability is a function of the warrant charge (see above) that occurs at top company level and in which minorities do not share. Excluding the warrant charge, in Q321, the minority amounted to 16.64% of net profit – ie close to the ambient 15.86% rate that might be expected as a result of Alphamin’s 84.14% interest in the Bisie mine.
Exhibit 2, below, provides an analysis of Alphamin’s underlying results for Q321 relative to both Q221 and our prior expectations:
Exhibit 2: Edison forecast of Alphamin income statement, Q121a–Q221a (US$ unless otherwise indicated)
|
Q121a |
Q221a |
Q321e |
Q321a |
Change
(%) |
Variance
(%) |
Variance
(units) |
Revenue |
76,032,045 |
68,053,576 |
91,768,730 |
91,350,482 |
34.2 |
-0.5 |
-418,248 |
Cost of goods sold |
(37,256,106) |
(29,780,333) |
(34,039,234) |
(32,384,856) |
8.7 |
-4.9 |
1,654,378 |
Depreciation |
6,380,606 |
6,423,261 |
6,511,323 |
6,790,732 |
5.7 |
4.3 |
279,409 |
Gross profit |
32,395,333 |
31,849,982 |
51,218,173 |
52,174,894 |
63.8 |
1.9 |
956,721 |
General and administrative |
(4,549,884) |
(4,729,496) |
(4,729,496) |
(5,280,772) |
11.7 |
11.7 |
-551,276 |
Operating profit/(loss) |
27,845,449 |
27,120,486 |
46,488,677 |
46,894,122 |
72.9 |
0.9 |
405,445 |
Other |
|
|
|
|
|
|
|
Warrants |
Excl* |
Excl* |
Excl* |
Excl* |
N/A |
N/A |
0 |
Profit on foreign exchange |
16,595 |
(45,653) |
|
(123,440) |
170.4 |
N/A |
-123,440 |
Loss on write off of assets |
0 |
0 |
|
0 |
N/A |
N/A |
0 |
Interest expense |
(2,648,401) |
(2,280,673) |
|
(1,782,310) |
-21.9 |
N/A |
N/A |
Interest income |
11 |
298 |
|
422 |
41.6 |
N/A |
N/A |
Net interest |
(2,648,390) |
(2,280,375) |
(1,235,712) |
(1,781,888) |
-21.9 |
44.2 |
-546,176 |
Profit before taxes |
25,213,654 |
24,794,458 |
45,252,964 |
44,988,794 |
81.4 |
-0.6 |
-264,171 |
Current income tax expense |
(11,113) |
(11,499) |
(11,313,241) |
(9,907,336) |
86,058.2 |
-12.4 |
1,405,905 |
Deferred tax movement |
(8,713,199) |
(9,588,773) |
|
(5,051,594) |
-47.3 |
N/A |
-5,051,594 |
Total tax |
(8,724,312) |
(9,600,272) |
(11,313,241) |
(14,958,930) |
55.8 |
32.2 |
-3,645,689 |
Effective tax rate (%) |
34.6 |
38.7 |
25.0 |
33.3 |
-14.1 |
33.0 |
8.3 |
Net profit/(loss) |
16,489,342 |
15,194,186 |
33,939,723 |
30,029,864 |
97.6 |
-11.5 |
-3,909,860 |
Profit/(loss) and total comprehensive profit/(loss) attributable to: |
|
|
|
|
|
|
|
Shareholders |
13,639,017 |
15,194,186 |
28,556,883 |
25,031,864 |
64.7 |
-12.3 |
-3,525,020 |
Non-controlling interests |
2,850,325 |
0 |
5,382,840 |
4,998,000 |
N/A |
-7.1 |
-384,840 |
Minority (%) |
17.29 |
0.00 |
15.86 |
16.64 |
N/A |
4.9 |
1 |
Total |
16,489,342 |
15,194,186 |
33,939,723 |
30,029,864 |
97.6 |
-11.5 |
-3,909,860 |
|
|
|
|
|
|
|
|
Weighted average number of shares in period |
1,182,251,580 |
1,188,156,191 |
1,192,267,057 |
1,188,156,191 |
0.0 |
-0.3 |
-4,110,866 |
Derivatives |
119,536,582 |
95,621,651 |
95,181,199 |
99,333,451 |
3.9 |
4.4 |
4,152,252 |
Fully diluted weighted average number of shares in issue |
1,301,788,162 |
1,283,777,842 |
1,287,448,256 |
1,287,489,642 |
0.3 |
0.0 |
41,386 |
|
|
|
|
|
|
|
|
Headline earnings |
8,002,190 |
4,900,644 |
28,556,883 |
20,911,936 |
326.7 |
-26.8 |
-7,644,947 |
Headline earnings (excl. warrant charge) |
13,639,017 |
15,194,186 |
28,556,883 |
25,031,864 |
64.7 |
-12.3 |
-3,525,019 |
|
|
|
|
|
|
|
|
EPS (US$/share) |
0.0115 |
0.0128 |
0.0240 |
0.0211 |
64.7 |
-12.0 |
-0.0029 |
Diluted EPS (US$/share) |
0.0105 |
0.0118 |
0.0222 |
0.0194 |
64.3 |
-12.3 |
-0.0027 |
HEPS** (US$/share) |
0.0115 |
0.0128 |
0.0240 |
0.0211 |
64.7 |
-12.0 |
-0.0029 |
Diluted HEPS** (US$/share) |
0.0105 |
0.0118 |
0.0222 |
0.0194 |
64.3 |
-12.3 |
-0.0027 |
Source: Alphamin, Edison Investment Research. Note: Company presented basis. *Excluded see Exhibit 3; actual Q321 charge US$4,119,929; **Headline earnings per share.
At the time of its Q221 results, Alphamin updated its guidance for the rest of FY21. In the light of the lower grades encountered in Q221, it then expected to mine lower tin grades averaging 3.2–3.5% in H221 and into Q122 which, at higher plant recoveries of 78% (including the fine tin recovery plant) and monthly throughput of 36,000t, suggested contained tin production of 900–1,000t per month. Production guidance for H221 was approximately 5,500t of contained tin (cf 6,500t previously) – albeit this now appears likely to be exceeded on the basis of Q321 results (see Exhibit 3, below). The grade of ore mined is then expected to increase to an average of 4.0% from Q222 onwards.
Quarterly estimates for Alphamin in the light of Q321 results are provided in the table below, with the caveat that the quarterly results of junior mining companies can be prone to material volatility relative to both historical results and analysts’ forecasts. At the time of writing, the current three-month price of tin is US$39,020/t. Note that, for the purposes of forecasting, we have assumed this price will prevail for the remainder of the year.
Exhibit 3: Edison forecast of Alphamin income statement, Q121a–Q421e (US$ unless otherwise indicated)
|
Q121a |
Q221a |
Q321a |
Q421e |
FY21e
(current) |
FY21e
(prior) |
Tons processed (t) |
93,997 |
105,294 |
108,901 |
108,000 |
416,192 |
416,192 |
Tin grade (%) |
3.8 |
3.2 |
3.5 |
3.4 |
3.46 |
3.46 |
Contained tin (t) |
3,572 |
3,369 |
3,812 |
3,638 |
14,391 |
14,391 |
Overall plant recovery (%) |
74 |
72 |
75 |
78 |
74.4 |
74.6 |
Actual payable tin produced (t) |
2,611 |
2,412 |
2,832 |
2,850 |
10,705 |
10,739 |
Payable tin sold (t) |
3,351 |
2,404 |
2,710 |
2,850 |
11,315 |
10,887 |
Tin price achieved (US$/t) |
23,083 |
28,326 |
33,704 |
36,916 |
30,221 |
29,143 |
|
|
|
|
|
|
|
Revenue |
76,032,045 |
68,053,576 |
91,350,482 |
105,209,384 |
340,645,487 |
310,676,123 |
Cost of goods sold |
(37,256,106) |
(29,780,333) |
(32,384,856) |
(33,651,013) |
(133,072,308) |
(125,792,804) |
Depreciation |
6,380,606 |
6,423,261 |
6,790,732 |
6,897,328 |
26,491,927 |
25,914,576 |
Gross profit |
32,395,333 |
31,849,982 |
52,174,894 |
64,661,044 |
181,081,253 |
158,968,743 |
General and administrative |
(4,549,884) |
(4,729,496) |
(5,280,772) |
(5,280,772) |
(19,840,924) |
(18,738,372) |
Operating profit/(loss) |
27,845,449 |
27,120,486 |
46,894,122 |
59,380,272 |
161,240,329 |
140,230,371 |
Other |
|
|
|
|
|
|
Warrants |
(5,636,827) |
(10,293,542) |
(4,119,928) |
|
(20,050,297) |
(15,930,369) |
Profit on foreign exchange |
16,595 |
(45,653) |
(123,440) |
|
(152,498) |
(29,058) |
Loss on write off of assets |
0 |
0 |
0 |
|
0 |
0 |
Interest expense |
(2,648,401) |
(2,280,673) |
(1,782,310) |
|
(6,711,384) |
|
Interest income |
11 |
298 |
422 |
|
731 |
|
Net interest |
(2,648,390) |
(2,280,375) |
(1,781,888) |
345,445 |
(6,365,208) |
(6,461,446) |
Profit before taxes |
19,576,827 |
14,500,916 |
40,868,866 |
59,725,716 |
134,672,325 |
117,809,498 |
Current income tax expense |
(11,113) |
(11,499) |
(9,907,336) |
(14,931,429) |
(24,861,377) |
(20,955,551) |
Deferred tax movement |
(8,713,199) |
(9,588,773) |
(5,051,594) |
|
(23,353,566) |
(18,301,972) |
Total tax |
(8,724,312) |
(9,600,272) |
(14,958,930) |
(14,931,429) |
(48,214,943) |
(39,257,523) |
Effective tax rate (%) |
(44.6) |
(66.2) |
(36.6) |
(25.0) |
(35.8) |
(33.3) |
Net profit/(loss) |
10,852,515 |
4,900,644 |
25,909,936 |
44,794,287 |
86,457,382 |
78,551,975 |
Profit/(loss) and total comprehensive profit/(loss) attributable to: |
|
|
|
|
|
|
Shareholders |
8,002,190 |
4,900,644 |
20,911,936 |
37,689,913 |
71,504,683 |
65,741,758 |
Non-controlling interests |
2,850,325 |
0 |
4,998,000 |
7,104,374 |
14,952,699 |
12,810,217 |
Minority (%) |
26.3 |
0.00 |
19.3 |
15.86 |
17.3 |
16.3 |
Total |
10,852,515 |
4,900,644 |
25,909,936 |
44,794,287 |
86,457,382 |
78,551,975 |
|
|
|
|
|
|
|
Weighted average number of shares in period |
1,182,251,580 |
1,188,156,191 |
1,188,156,191 |
1,193,945,424 |
1,188,289,347 |
1,188,897,472 |
Derivatives |
119,536,582 |
95,621,651 |
99,333,451 |
95,502,832 |
95,502,832 |
95,181,199 |
Fully diluted weighted average number of shares in issue |
1,301,788,162 |
1,283,777,842 |
1,287,489,642 |
1,289,448,256 |
1,283,792,179 |
1,284,078,671 |
|
|
|
|
|
|
|
Headline earnings |
8,002,190 |
4,900,644 |
20,911,936 |
37,689,913 |
71,504,683 |
65,741,758 |
Headline earnings (excl. warrant charge) |
13,639,017 |
15,194,186 |
25,031,864 |
37,689,913 |
91,554,980 |
81,672,127 |
|
|
|
|
|
|
|
EPS (US$/share) |
0.0068 |
0.0041 |
0.0176 |
0.0316 |
0.0602 |
0.0553 |
Diluted EPS (US$/share) |
0.0061 |
0.0038 |
0.0162 |
0.0292 |
0.0557 |
0.0512 |
HEPS (US$/share) |
0.0068 |
0.0041 |
0.0176 |
0.0316 |
0.0602 |
0.0553 |
Diluted HEPS (US$/share) |
0.0061 |
0.0038 |
0.0162 |
0.0292 |
0.0557 |
0.0512 |
Headline EPS excl. warrant charge (US$/share) |
0.0115 |
0.0128 |
0.0211 |
0.0316 |
0.0770 |
0.0687 |
Source: Alphamin, Edison Investment Research. Note: Company presented basis.
Our valuation of Alphamin is under review pending a reconsideration of our long-term tin price. Assuming the current three-month price of tin (US$39,020/t) prevails for the remainder of Bisie’s life, however (ie adopting the current tin price as our long-term price), we calculate a valuation for Alphamin (excluding any blue-sky exploration potential) of 86.1 US cents, or 109.7 Canadian cents, per share.
Exhibit 4: Alphamin LOM forecast EPS, maximum potential DPS and NPV10 of DPS, FY18–32 ($/share)
|
|
Source: Edison Investment Research
|
Note this valuation assumes management executes the Bisie life of mine schedule according to plan and applies a 10% discount rate to forecast dividends.
Exploration and mine life extensions
A key sensitivity for Alphamin is its exposure to exploration success. Alphamin’s processing schedule follows its mining schedule closely. As this drops away towards the end of the life of the mine, so too do production, earnings and cashflow. To the extent that Alphamin is successful in its exploration at Mpama North and Mpama South in keeping its plant in full production at FY27 levels into the future (see Alphamin’s latest announcement: Alphamin provides Mpama North and Mpama South drilling update, released on 8 November 2021, and below), our valuation of the company (calculated at the prevailing tin price) would increase as follows:
Exhibit 5: Alphamin valuation sensitivity to exploration success
Additional years at full capacity |
To year |
Valuation
(US$/share) |
Valuation
(C$/share) |
Incremental change (C$/share) |
|
|
0.861 |
1.097 |
|
0 |
2027 |
0.849 |
1.082 |
-0.015 |
+1 |
2028 |
0.890 |
1.135 |
+0.053 |
+2 |
2029 |
0.940 |
1.198 |
+0.063 |
+3 |
2030 |
0.976 |
1.244 |
+0.046 |
+4 |
2031 |
1.010 |
1.288 |
+0.044 |
+5 |
2032 |
1.060 |
1.351 |
+0.063 |
Source: Edison Investment Research
For the purposes of this valuation, we have assumed an ongoing exploration commitment at Alphamin of US$2.7m per year to achieve the replenishment of reserves and resources required to keep the mine operating at full capacity. Readers should note this is the reason for the apparent decline in valuation for zero years of additional life in Exhibit 5, above; in this case, extra exploration expenditure has been incurred for no additional increase in mine life.
On average, therefore, each additional year by which the plant is maintained at full capacity (in the short term) adds an average of 5.4 Canadian cents per share to our valuation of Alphamin (at the prevailing tin price). In the limiting case, in which exploration success is sufficient to maintain production at FY27 levels indefinitely (which, for these purposes may be taken to mean c 62 years), our valuation of Alphamin rises to US$1.92/share, or C$2.408/share, and its valuation profile to that shown by the ‘Cash-flow and terminal multiple valuation’ line in Exhibit 6, below.
Exhibit 6: Alphamin EPS, DPS and valuation forecast, including exploration success, FY18–32 ($/share)
|
|
Source: Edison Investment Research
|
Tin price sensitivity
Our valuation of Alphamin changes by ±13.3% from its current level of 86.1 US cents for every ±10% that the tin price moves from its current level of US$39,020/t. Alternatively, we calculate that Alphamin’s share price of C$0.95 discounts a long-term real tin price of US$35,090/t, which is 10.1% below the current (three-month) price of tin.
Exhibit 7: Tin price (US$/tonne), Q420 to present
|
|
Source: Refinitiv (23 September 2021)
|
Within this context, readers should note that tin is the second best performing of 16 metals and minerals since 1 January 2020 (after prime Australian coking coal) and the best performing since 1 January 2002.
