CA - Alphamin: The Alpha-Mine Of Critical Tin

Summary

• Tin can be considered a “forgotten” critical metal that is essential for societal function.
• Supply has been constrained and demand is growing at GDP+, sending tin prices 50% higher from pre-COVID levels with room to run.
• Alphamin Resources Corp. is an extremely unique mine with incredible ore grades, low costs, and great exploration potential.
• Initiating coverage as a buy, I believe Alphamin Resources Corp. will outperform the market over the next several years.

Introduction & The Tin Market

Tin may not sound like the most exciting investment, but boring often = profitable, and I believe the price for Alphamin Resources Corp. ([[AFMJF]], [[AFM:CA]]), a major global tin producer, is too low given the company’s prospects.

Tin is an electrically conductive metal, and ~50% of annual global tin demand is used in solder to “glue” electrical parts and circuit boards together and allow conductivity. Here's a little bit more on solder if you are interested. The trends of electrification, renewables including solar, artificial intelligence, IoT, and more all contribute to increasing tin demand.

So important is tin to any electric future that, according to Alphamin and MIT, tin is “the metal most likely to be positively affected by future technology” and “the metal with which the Fourth Industrial Revolution will be built.”

The other 50% of tin demand is used widely – in chemical production, tinplate (anti-corrosion for iron and steel), lead-acid batteries, and a broad range of other products.

This is because tin is a very low-cost assistive metal – a very small amount significantly increases conductivity, durability, and value for many products. Beneficially, this also gives the metal a very low elasticity of demand – for example, there are about 7 cents of tin in an iPhone . This means even a 3x-4x in the price of tin would barely raise input costs and would not severely hamper demand.

Supply and Demand Favorable, Tin Prices Sustainably Higher

With demand growing at global GDP+, supply needs to constantly grow to keep prices stable. Unfortunately, (or fortunately for tin investors), existing mine reserves are being depleted and new production is not coming online to replace them.

The supply/demand balance has already caused the price of tin to rise from around $17,000 from pre-COVID to around $25,000 currently. In early 2022, it rose to nearly $50,000 before coming back down to earth on economic worries and continued Chinese lockdowns (China is a major tin source of demand).

According to Alphamin, supply and demand has already reached critical levels and requires a sustained incentive/floor price of over $25,000 to fill the expected supply gap that will occur over the next few years.

I also very highly recommend this podcast from 2021 with Mark Thompson and Trevor Hall from Mining Stock Daily. Mark dives into the history of tin, how we got into the current supply/demand situation, and why tin supply is likely to remain tight. Mark also touches on the fact that countries like Myanmar and Indonesia have been depleting their lowest-cost reserves and are quickly running out of economic ore.

One final note on supply and demand – the market has been so critically tight, one of my favorite market anecdotes ever occurred in the tin market last year – U.S. chipmakers and industry players were so desperate for tin that the United States Defense Logistics Agency offered and publicized “ two truckloads of weather-damaged tin ” for sale to alleviate market tightness.

Alphamin Is An Alpha-Mine: Extremely Economic With Blue-Sky Potential

In addition to being in a great market, Alphamin boasts a beast of a mine. Its ore grades are off-the-charts, not only compared to other tin mines but also to ANY other types of mines globally. According to mining.com, Alphamin currently has the 3 ^rd -most valuable ore body of ANY mine globally. This includes copper, gold, silver, etc.

Alphamin presents this in chart form as seen below . Other ore bodies are not even close.

One other anecdote I will add to solidify the understanding of just how valuable this ore is – from a very knowledgeable tin resource, TraderPamplona on Twitter : AFM’s ore is “more valuable than pure copper and 4-5x more valuable than pure zinc or lead… [it's] like finding a Rolex in the dirt.”

Mpama South and Exploration

You’ll notice in the ore grade chart above that Alphamin’s bubbles are split. Alphamin’s current mine, Mpama North, produces ~4% of the world’s refined tin each year and has been since it began operating in 2019.

However, Alphamin is much more than Mpama North – its land package is very expansive and has incredible exploration and production potential.

As tin prices skyrocketed last year, Alphamin was making a ton of money. It not only instated a semi-annual dividend, but it also continued exploring its prolific Bisie Ridge. Only 200 meters away from the current Mpama North mine, Alphamin conducted exploration drilling returning incredible ore grades – at what it is calling Mpama South. Though grades are slightly lower than the Mpama North mine, they are still head and shoulders above the competition as you can see in the grade chart previously referenced.

AFM has moved quickly to capitalize on Mpama South – last year, it completed all preliminary studies, ordered long lead-time equipment, and began the process of building a second mine. It plans to complete construction and begin production December 2023 – and will increase its production ~66% from 12,000 to 20,000 ktpa.

Not only will Mpama South bring in more profits through more throughput, but it will also leverage fixed costs to further bring down AFM’s AISC and solidify it as one of, if not the lowest-cost tin producers on the planet.

Oh, and finally, Mpama South is also only still the tip of the iceberg. The below picture may be a bit difficult to understand, but the two black boxes at the top represent Mpama North and Mpama South. AFM estimates <20% of the Bisie Ridge has been drill tested and notes at least 6 other similar-appearing drill targets in its land package.

Risks: Mainly Jurisdiction, Perhaps Technology

The main risk I believe Alphamin is subject to is its jurisdiction – the company is entirely located in the DRC, and any conflict there or in the surrounding area has the potential to disrupt AFM’s profitable operations.

I am no DRC geopolitical expert, but I think it is important for prospective investors to note potential risks there.

The main one I see is potential conflict: the Congolese government has been fighting with rebels and humanitarian agencies estimate the disputes have displaced half a million people since March 2022.

A few mitigating factors to this jurisdiction risk are: 1) governmental ownership 2) country mining prowess, and 3) AFM’s remoteness.

1. The DRC government owns 5% of Alphamin, and this cannot be diluted per AFM bylaws.
   1. A South African government organization working with African development companies owns an additional 11%.
2. The DRC has experience working with mining companies and wants to modernize its mining programs.
3. AFM is located in a very remote region of the DRC, away from most population and conflict zones.

I am personally managing this jurisdiction risk through position size, though investors can use a plethora of choices (put options, writing calls, perhaps shorting tin futures) to manage risk.

I will add that Alphamin has brought economic activity to a region that previously had very little – and at least some of the locals are very happy about it. Check out this YouTube video and song dedicated to the development of the Alphamin mining complex and what it has brought to the region.

One other smaller risk I can see is technology allowing for less tin being used in solder, but this seems to have a very low probability. Miniaturization is largely playing out ( see below ), and any kind of replacement metal for tin would require years of development and implementation.

Technical Analysis

Here are my estimates of bullish scenarios for Alphamin. I wish I had gotten this article done sooner, before AFM bounced 50% off its lows and 20% over the last week, but such is life.

Even though tin is performing strongly, given AFM's recent run and some technical resistance above, I don’t estimate the stock will go straight up from here. I have marked an area of potential resistance around $1.00-$1.05 CAD on the chart, where we could see some sellers step in.

However, I'll also note that AFM is paying a 7% annualized dividend, is trading at a roughly 3x EV/EBITDA trailing and probably around a 2x EV/EBITDA forward when including Mpama South. It is also producing a critical metal which is very unlikely to see significant demand declines. I believe something along these lines is likely to play out.

Closing

In closing, I believe Alphamin Resources Corp. is a fantastic opportunity for investors interested in niche markets and with the appropriate risk tolerance and time horizon.

There is too much to discuss in one article on Alphamin and the tin market, but I remain extremely bullish on Alphamin Resources Corp. and currently own a sizable position in my accounts. I plan to hold for the foreseeable future.

Big shout out to all of the #TinBarons on Twitter and those who have been on top of this story since 2020 or even before.

Thank you for your time and attention, please comment below if you have something to add or discuss.

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