First Berlin – Almonty Industries Inc. Research Update (12/02/2018)

First Berlin Equity Research has published a research update on Almonty Industries Inc. (ISIN: CA0203981034). Analyst Simon Scholes reiterated his BUY rating and maintained his CAD 1.10 price target.

Almonty's annual report for the year to end 30 September showed a 53.6% rise in EBITDA from mining operations to CAD6.7m (2015/16: CAD4.3m; FBe: CAD5.9m) as higher prices for tungsten concentrate (we estimate that Almonty secured an increase of ca. 23%) outweighed both a 15.9% decline in volume and higher unit costs due to a decline in the average grade of ore processed. For 2017/18, we model a 33% increase in shipments of WO3 to 196k metric tonne units (2016/17: 148k MTU), a 33% increase in the average price per MTU to USD250 (2016/17: USD188), as well as declining all-in cash operating costs/MTU as the grades of ore mined at Los Santos and Panasqueira return to normalised levels. We expect these drivers to effect a turnaround in operating cashflow to CAD15.7m in 2017/18E (2016/17:CAD-2.9m). Equally important to our valuation is our expectation of the near term financing of the Sangdong project in South Korea, which accounts for over half of our enterprise valuation of Almonty. The current global economic upswing is creating increasing demand for tungsten. Meanwhile China, which accounts for 80% of worldwide primary tungsten production, is reducing exports of the upstream commodity, tungsten concentrate (Almonty's product). Almonty's customers, who as suppliers of downstream tungsten product are reliant on concentrate, are concerned to reduce their dependence on Chinese supply. The development of Sangdong, which is one of the largest resources in the world at 25.9m MTU WO3 in situ, and whose average grade of 0.49% is twice the average of western/Chinese mines, is likely to be part of the solution to this problem. Almonty is negotiating with banks and offtake partners and we continue to expect a deal in the near term. We maintain our Buy recommendation and price target of CAD1.10.