First Berlin – Almonty Industries Inc. Research Update (10/06/2020)

First Berlin Equity Research has published a research update on Almonty Industries Inc. (ISIN: CA0203981034). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from CAD 1.45 to CAD 1.35.

Completion of the loan documents for the financing of the Sangdong mine by the German state-owned development bank KfW-IPEX Bank is imminent. The loan (USD76m at 3 months LIBOR +2.5%) will be available for drawdown following the sourcing of a further USD31m in hybrid debt/equity expected over the next few weeks. Drift development as well as equipment procurement and installation have been proceeding at Sangdong since last year, and subject to near-term drawdown of the loan, are scheduled for completion by early 2022. Almonty will be using a well-established flotation technique to recover tungsten concentrate from the Sangdong deposit. Metallurgical tests carried out by KIGAM (Korea Institute of Geoscience and Mineral Resources) and by Wardell Armstrong produced recovery and tungsten concentrate grades of 85%-90% and 62%-70% respectively. Recovery of over 80% is considered high, while grades above 62% are acceptable for concentrate. In addition, Almonty commissioned its own pilot plant on the Sangdong site in the summer of 2019 and will thus have had two years to refine its process before production starts in earnest in 2022. On this basis, we think that the likelihood of disappointments at the start of operations at Sangdong is small. China was responsible for nearly 80% of global primary tungsten output in 2018. When Sangdong reaches full capacity in 2026, it will account for ca. 25% of non-Chinese supply. The project's strategic importance is underlined by the 15 year offtake concluded with Plansee/GTP for 210k MTU annually with a floor price of USD183/MTU. Cash cost is ca. USD106/MTU. We lower our price target to CAD1.35 from CAD1.45 to reflect a later start to mining at Sangdong than previously modelled but maintain our Buy recommendation.