Tin Baron or Tin Barren: Alphamin Resources $AFM.V $AFMJF, Metals X $MLX.AX $MLXEF

If I only had the nerve

Hey ChatGPT, create a version of “If I Only Had the Nerve,” but make it about Alphamin Resources (AFM.V).

“I could be richer, wiser,

Not a market compromiser,

With deals that I deserve.

But when I see the Congo,

And the mines that are a no-go,

I just can’t find the nerve.

I could be making millions,

Investing in commodities worth billions,

A fortune to preserve.

But risks are just so frightful,

And geopolitical woes so rightful,

If I only had the nerve!”

Two of the most enthusiastic groups of investors on Twitter are those who are buying tin miners, and those who are buying a Swedish topical toenail fungus pharmaceutical company. Today I am diving into the former with the help of

AlmostMongolian

.

The macro setup of the tin thesis is far better than any of the companies in the space. Tin is used in soldering circuits, allegedly it is irreplaceable, but also such a small part of the cost that manufacturers would pay any price, and bringing new tin mines into production would take years. The tin market is currently in a structural deficit, and we have just kicked off an Artificial Intelligence revolution, which means more circuits, and more solder. Not to forget the rollout of the Web3 Internet of Things, and the trends toward circuitry in everything, no matter how susceptible that leaves humanity to an outsized solar flare. Elon Musk wants all to have robotic manservants in a decade or so, those take a circuits as well. And the energy transition folks haven’t gone away, they are still pushing their green dream and the enormous amount of battery storage that it would require.

Before I try to poke a few holes in the thesis, this is probably one of the more sound macro ideas out there. It has a lot of similarities to silver, but without the reliance on solar power, or uranium, without the in-situ mining capable of bringing new production online quickly. The biggest problem with tin isn’t the tin thesis itself, it’s the companies, the management teams, and the jurisdiction that one has to tangle with in order to get exposure to it.

The inelasticity of tin supply might be true, but somewhere between 30% and 40% of annual tin production comes as a byproduct from other types of mining. If copper production were to ramp up, some additional tin would come with it. Also, tin is mined in a lot of jurisdictions with ample labor and lax environmental rules. If tin prices shot up high enough, how many Burmese or Indonesians would pick up some extra hours of work at the tin mines?

Much like the situation with copper, it feels like most of the metals are being overlooked at the moment after prices didn’t respond to investor sentiment within a timeframe that matched their attention spans. Materials are not catching a bid as a part of the overall Trump trade, however, if overall economic activity were to be stimulated by the promised deregulation, lowered taxes, and accelerated depreciation, I believe that the commodity supercycle thesis is still very sound.

Tin production comes primarily from China, Indonesia, and Burma, but there are other countries with reserves that could produce tin. The supply restraint is how long it takes for a traditional mine to be completed from start to finish. Metals such as lithium and uranium can be dissolved and slurped out of the ground with in-situ mining techniques, dramatically shortening the supply reaction to higher prices. Even some types of copper deposits can be mined in this way, but tin is unsuitable for in-situ mining.

On top of the inelastic supply, there is also the ongoing possibility of supply disruptions, the ecological devastation in Indonesia is becoming a political problem, and Burma temporarily stopped production to perform an audit of the mining sector, current Burmese tin production rates are not known. So the macro setup is as perfect as it can get, a declining and inelastic supply and a rising demand. The only question that remains is how much abuse are shareholders willing to tolerate to express this thesis?

A significant amount of tin comes from mixed ore bodies as a byproduct of lead mining, there are relatively few pure tin companies. Of those few tin companies, some are smelters, which might not be the right bottleneck to own, and others are private, such as Peru’s Minsur. What remains is Alphamin Resources (AFM.V) and Metals X (MLX.AX).

Alphamin Resources operates the Bisie tin mine in the Democratic Republic of Congo. That kind of jurisdictional risk might be enough for some investors to stop reading already. Shares are currently trading at $0.84, and trailing twelve month earnings per share is $0.06. A year with tin prices above $35,000 per ton like they were from mid 2021 to mid 2022 and EPS would be closer to $0.20. And all you need to tolerate to be exposed to that kind of tin torque is exposure to the Congo, on the border with Rwanda where military incursions have been taking place for the last few years, but with new hopes of peace. At least Alphamin returns capital to shareholders in the form of dividends, mostly due to the influence of the 57% owner, Denham Capital.

Metals X, on the other hand, owns 50% of the Renison tin mine located in Tasmania. Instead of African jurisdictional risk you can enjoy Australian jurisdictional risk, where royalties are whatever the current government wants them to be, and if you need to relocate your processing equipment, you had better hope it doesn’t conflict with a site of Aboriginal cultural importance. Since Aboriginals lived outdoors, everything in Australia is of cultural importance, and any industrial process can be shutdown. At least in Africa they usually just want a bribe, but eventually the answer is yes. In Australia they seem to just halt production for the sake of halting production.

Shares of Metals X cost 0.40 AUD, and in the last twelve months, had earnings of 0.02 AUD. In 2022, with higher tin prices, those earnings were 0.20 AUD per share, so Metals X trades at price to peak earnings of 2x. But without the presence of a strong shareholder, management has few plans of returning that capital to shareholders. Instead they just keep it in the corporate coffers, Metals X at the end of 2023 had 143 million AUD of cash on the balance sheet for a 350 million AUD market capitalization company.

Management did throw a few crumbs to shareholders when they announced a share buyback program that was authorized to buy back up to 10% of the common stock of the company. It appears that six months after the share buyback announcement, only about 1/10th of the authorized buyback program has been utilized. Meanwhile, Metals X management has started acquiring First Tin Plc (1SN.L), a tin exploration and development company. So far, the Metals X stake is approximately 29% of First Tin.

So which would you prefer, incentive alignment with management, but to operate in Africa for a price to sales ratio of 2.5x, or poorly aligned incentives with management, but to operate in Australia for a price to sales ratio of 1.9x? I have to side with

AlmostMongolian

on this one, if I were to buy a tin miner, it would be Metals X. I simply refuse to pay a higher multiple just for the privilege of owning a business on a continent where a military junta starts holding mining executives hostage.

So in the end, I’m not sure if I want to be a Tin Baron, and risk ending up Tin Barren. Maybe this particular metal has a sound macro thesis, but no acceptable way to participate in it? Or maybe Metals X isn’t so bad for the opportunity it presents? I’m half tempted to look elsewhere, I’ve been hearing good things about antimony after all, and some of the copper miners have fallen back into a range where the prices are attractive again.