First Berlin – Almonty Industries Inc. Research Update (30/09/2020)

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 1.45 price target.

Abstract
Q2/20 revenue at CAD7.0m was 9.4% above the Q1/20 number of CAD6.4m and 38% above our forecast. EBIT was impacted by administrative costs in connection with the ongoing Sangdong financing but at CAD-0.5m was still above the Q1/20 level of CAD-2.5m. The USD76m loan agreement with KfW to finance the Sangdong mine was finalised earlier this month. Sangdong is expected to account for 25% of non-Chinese WO3 supply by 2026. A further financing update is due shortly. The total sum required to construct the mine is USD103m. The owners' cost portion still to be raised is USD23m. The debt service reserve account comprises USD10m of this figure. We expect this sum to be financed through a bank guarantee or line of credit and the balance of USD13m to stem from a hybrid/mezzanine/bond financing structure. Once this money is raised, Almonty will be able to draw down the USD76m from the KfW. Sangdong has a multi-decade mine life, and the resource to CAPEX ratio at 3.9x is very competitive. Moreover, the average tungsten grade of 0.44% at Sangdong is twice the Chinese and global average. Thanks to the high grade of the resource Sangdong's cash operating costs at USD106/MTU (MTU = metric ton unit = 10Kg) are in the lowest quartile of the cost curve. The 15 year 210k MTU p.a. offtake agreement with the Plansee subsidiary, GTP, has a floor price of USD183/MTU implying a secure annual cashflow of USD16.2m. Based on these attributes we believe Sangdong is the world's best tungsten project. WO3 production at Sangdong is scheduled to reach ca. 500,000 MTU p.a. by 2026. We maintain our Buy recommendation and CAD1.45 price target.