Commodity Super Cycle – Tin Market: Are tin market prices witnessing a considerable rise due to growing residential and commercial construction sector or is it the clean energy economy?
Tin Market Commodity Super Cycle: The current euphoria in commodity markets may make some investors worry that it’s too late to expand their resource exposure. You wouldn’t be blamed for believing we’re deep into a commodity bull market with iron ore trading high, copper rising higher due to the anticipated supply shortage and lack of new development, and crude oil likely to rise.
Despite the fact that commodity prices have been impacted by factors such as the Inflation Reduction Act of 2022, the most significant climate legislation in U.S. history, which provides funding, programmes, and incentives to accelerate the transition to a clean energy economy, the Inflation Reduction Act of 2022 is likely to drive soaring commodity prices.
A ‘commodity super cycle’ an extremely rare phenomena in which structural adjustments cause extended periods of huge commodity premiums, has attracted the attention of many analysts. Although the super cycle has been the primary topic of conversation, it is not strictly necessary for producing large unexpected earnings in the medium to long term.
There is a substantial amount of data everywhere you look to suggest that the price of commodities will continue to be higher for a longer period of time. This is primarily attributable to the record level of fiscal spending and the potential for increased business investment worldwide.
An investing choice that not many investors are considering today is to look at different commodity markets than what the majority of investors are looking into and the vast majority of investors aren’t considering Tin as a long term investable commodity. We believe this is about to change.
There has been some conjecture in the media regarding supply deficit and supply limitation of the Tin Market; nonetheless, the share price of only a hand full of listed tin producers hasn’t moved higher on a significant scale.
What many investors are not aware of is Tin is a commodity that fits the majority of those robust underlying thematic backings, such as copper, lithium, and nickel, but it only receives a small fraction of the attention that these other metals do. Tin miners’ stock prices have not yet caught up with the gains in other commodity prices so far this year, despite the fact that the price of the underlying commodity has performed quite well.
Tin, due to its function as an essential input in the production of silicon chips through solder, is poised to emerge as the primary beneficiary of the “smartification” of technology and the Internet of Things (IOT).
The Tin Market as a commodity is exposed to the emerging electric vehicle market, solar power, battery technology, and cutting-edge computing.
The Tin Market significance over the next ten years cannot be understated. Researchers at the Massachusetts Institute of Technology (MIT) in Boston selected it as the top metal that is best positioned to profit from the introduction of new technology. Despite this, tin’s interest continues to lag behind that of its other technological/battery metal rivals.
Tin has not been on the radar of most investors because there are very few opportunities for exposure to it in the Australian market, this is the fundamental reason for this.
When we think of the Tin Market, there aren’t too many producers that concentrate their efforts primarily on the Tin resource, and those that do exist often only constitute a small portion of overall operations.
Two companies that either produce Tin or are in the process of developing a Tin mine that are listed on the Australian Securities Exchange and are maybe worth doing more research into are Metals X (ASX: MLX) and Elementos (ASX: ELT).
Elementos is an interesting ASX listed company to put on the watch list for those investors who are looking for exposure to a pre-production tin opportunity. With a market cap of $30 million and a permitting challenge they are certain they will be able to work through with the Spanish government, Elementos is an exciting opportunity to keep an eye on.
On March 9, 2022, the Andalucían Government (also known as the Junta de Andalucia) made a public announcement that they would be providing significant assistance for the Oropesa Tin Project. In doing so, they designated it as the Spanish equivalent of a ‘State Significant Project’ in Australia.
Both the Oropesa Project in Andalucia, Spain, and the Cleveland Project in Tasmania, Australia, belong to Elementos. The Oropesa Project is located in Andalucia and is its primary focus for now.
With a total measured and indicated mineral resource of 18.53 million metric tonnes according to the JORC, the Oropesa Project is one of the world’s largest and highest-grade tin resources.
Management has stated that they anticipate that a Definitive Feasibility Study (DFS) for the project will be finished and made available to the market once the necessary permits have been obtained. This will allow for a more rapid progression to the production stage than would be possible with a PFS.
As an example of the profit that may be made by a low-cost Tin producer as long as Tin Market prices are high, we can look at the Oropesa Economic Study published by ELT in May 2020, when Tin was selling for US$19,750 per tonne.
Based on the study’s assumptions, the project has an NPV of $94.3m and a total project EBITDA of US$281m over a 14-year life of mine (LOM), with an AISC in the bottom quartile of cheapest Tin producers at US$11,800/t and CAPEX of US$52m (including a 20% contingency). The optimisation study has seen a lot of these number be revised upwards.
At the conclusion of the March quarter 2023, Elementos had $2.7 million in cash, and their burn rate indicated that they are well-resourced to finish their DFS without having to tap the market for more funding.
If tin prices and the Tin Market continue to be robust and continue to grow, and if management is able to execute on the Oropesa project, there is plenty of room for big rerates. The potential to earn around AU$79 million in EBITDA per year on revenues of AU$152 million shows that there is plenty of possibility for substantial rerates.
The fact that this study does not take into account the second project (Cleveland Tin Project) means that there is lots of room on the upside, but the possibility for risk on the downside is kept to a minimum. This is one of the reasons why this prospect is so interesting.
The Cleveland Project is located in the north-west corner of Tasmania, and it is a JORC open-cut and underground resource with considerable tin-copper tailings. With the Spain Tin project a priority at the moment, the management has positioned Elementos to become a significant Tin producer in the near future, as evidenced by the company’s total JORC resource of 7.47Mt (0.75% Sn, 0.30% Cu) and an indicated resource of 6.23Mt in its own right.
Tin Market Movements and Dynamics
Predicting future profits for a company dependent on a single resource is challenging because of the inherent uncertainty in supply and demand trends. Surges in Tin demand from the early 2020 lows due to strong demand for consumer electronics in 2022/23 and the closure of refineries provide both a boom in demand and a drop in supply which in turn could lead to robust Tin Market price support.
When researching the growth in demand for tin online, it is commonly predicted to remain steadily above its long-term growth rate of 1.8% over the next decade. However, severe underinvestment to cover the gap would likely lead to an increasing supply deficit over the 2020s.
Even when using the more moderate long-term growth projection of 1.8%, it is anticipated that the Tin Market will still be in a shortfall of 30-40 kt by the year 2025. Furthermore, it is anticipated that the deficit will accelerate towards the end of the decade because ESG initiatives are anticipated to pick up a gear.
Elementos could be an excellent addition to your watch list if you are an investor who is optimistic on the Tin Market as a long-term play or who is wanting to increase their exposure to ESG-linked metals such as Tin. As is the case with all small-cap mining companies that have exposure to a particular resource, keep an eye out for important moments of de-risking along the road.
The clear dependency on the price of Tin, the dilution of shares through capital increases, and the vulnerability of the commodity market to China’s uncertain future are all things investors should consider when looking into potential businesses to invest in.
The closer the company Elementos Ltd get to production, the more value there is to be uncovered, even though it will be a few years before any receipts are recorded.
One last note to consider when researching Elementos is the company is undoubtedly rubbing shoulders with tier 1 operators in a tier 1 jurisdiction given the proximity of their neighbours like:
- Sandfire Resources MATSA: (Market Cap: A$2.73B)
- Atalaya Mining: (Market Cap: A$875 million)
- Minas de Alquife: Europe’s largest open-pit iron ore mine.
Here you will find some extracts from Elementos most recent presentation. You can find out more about the company by visiting their website here: Elementos Ltd
