Tin is the new gold. Really
Alphamin’s Bisie mine, on the verge of a bailout two years ago, is coining it due to a huge increase in the metal’s price
● Shares in Alphamin Resources, a tin miner in the Democratic Republic of Congo (DRC), are on a tear. A company few have heard of outside mining circles now has a market capitalisation of almost R22.5bn, thanks to a 300% gallop in its share price over the past 12 months.
That’s remarkable, considering its position in 2020 when CEO Maritz Smith was praying for a higher tin price so the company could keep its Bisie mine going.
Bisie was scoped on a conservative tin price of about $17,000 a ton. When it was commissioned, however, the price was even lower. To compound the difficulties, production build-up hadn’t been entirely smooth.
There were other issues. Floods swept away a bridge on an access road about a year after the mine’s commissioning, which held up inbound goods and outbound metal deliveries.
The mine is in the hilly jungle of the DRC’s North Kivu. This is not just your average wilderness, but of the inaccessible type that requires entirely new roads to be built and land levelled. North Kivu is also infamous as the district where the Congo’s warlords stalked. It was always going to be a tricky mine to build.
These were difficult days. Boris Kamstra, an executive director of Pangea Exploration, the Joburg-headquartered company that brought investors into Bisie, was for a period its CEO. Asked in 2017 why the company wanted to build a mine in the Congo badlands, he said: “There are criminal elements in any society but the outside perception in people’s minds of North Kivu is that there are armies running around. There are not.”
Commenting today, Kamstra says he’s just happy not to be the “main attraction at the freak show” end of the mining game.
Alphamin’s lenders worked a plan to estabhousehold lish a mining breakeven of about $13,000 a ton. But by April 2020,
Alphamin was holding out for a further metal price improvement.
This was in order to pay a 36-month fixed debt capital instalment of about $2.72m, which had been arranged to keep Bisie turning over.
Initially, interest on the loan was $1.3m a month.
The picture today is completely different for Bisie, thanks to a spectacular leap in the tin price to around $40,000-$41,000 a ton. Metal prices are the great game-changer in mining and it showed recently in Alphamin’s thirdquarter numbers. The company turned net cash positive in mid-2021 (at about $1m), but by September cash had risen to $68m. In January, the company announced a maiden dividend of three Canadian cents a share.
“That was an unusual cash conversion,” says Smith in an interview. “That’s because we didn’t have any major corporate tax but now that will be payable.”
Nonetheless, Smith thinks that as a rule of thumb about half of Alphamin’s earnings before interest, tax, depreciation and amortisation (ebitda) will be converted into cash. Bisie’s all-in sustaining costs are about $14,000 a ton. That’s a mile-wide margin against the present tin price.
“Provided the tin price stays above $23,000 a ton … money floods to the company’s bottom line creating a virtuous circle of cash generation,” said Christopher Ecclestone in a 2021 report for New York-based investment firm, Hallgarten & Company.
Alphamin, with just one mine, produces about 3% of global tin supply. While it’s not a name, the stock is up 425% over three years.
‘Tin bulls” describe the metal as “the glue” of the internet of things. The reference is to its end use as a solder in the manufacture of electronics, as well as packaging.
But tin also has an application in the manufacture of lithium-ion batteries, the science behind electric vehicles. Cited by a Reuters report last year, the International Tin Association reckoned 60,000t of tin demand can come from electric vehicles alone.
Alphamin’s own studies suggest that even at an annual growth rate of between 2% and 3%, an additional 8,000t-10,000t in tin demand will be generated. Bisie is shooting for production of 12,000t this year. This means global demand needs a new mine like Bisie every year for the foreseeable future, says Smith.
Set against this picture, new tin production to help plug the demand growth is limited. “It’ll take time for new mines to come on stream so there’ll definitely be an interim lag,” says Smith. “We could see the tin price higher over the next two to four years.”
Yet local sell-side investment interest in the stock is limited. Tim Clark, an analyst for Standard Bank Group Securities, argues that there are too few shares available. Smith, however, thinks liquidity is decent. About 20-million shares trade monthly — around 250-million a year in a free-float of about 500-million to 600-million shares, he says.
Still, the company is tightly held, with hardly any local institutional interest.
The largest shareholder is the Mauritius-registered Tremont Master Holdings, founded by US investment company Denham Capital. It
owns just over 60% of Alphamin. Another 10.9% is held by the Industrial Development Corp (IDC). “The IDC has been a pretty patient investor,” says Smith. “If there were corporate activity, I think they would be willing to follow their rights.”
That’s an interesting point because Alphamin is assessing how it might allocate free cash in the future, including a dividend. There’s also the prospect of merger and acquisition (M&A) activity. Smith says M&A is not beyond the bounds of possibility, but for now the focus is on returns and diverting cash into exploration work situated about 750m south of the current workings, known as Mpama North. The exploration on Mpama South may form the basis of an expansion to the existing mine.
Smith says he’s unable to disclose the impact of a brownfields development right now while shareholders haven’t been informed, but the beauty of expansion of this sort is the marginal cost of production it implies. That, in turn, allows for a potential lower grade (if that’s the case) and quicker build-up, given that most of the infrastructure capital is sunk. Processing facilities would have to be built, however, which is likely to form the bulk of future capex.
As it stands, Bisie is the world’s highestgrade tin mine — four times richer than any other operating mine, according to the company.
“All I can say is we are very excited about the expansion possibilities,” says Smith.
The outside perception of North Kivu is that there are armies running around. There are not
Boris Kamstra