Summary
- Over the long term, AMVMF should be a solid holding if investors can get in at a lower price point.
- If the company delivers on its EBITDA guidance for 2023, it should generate some good returns for investors, although it has already made a big move since September 2022.
- Investors do need to take into consideration that it's a very thinly traded stock, and it could be hard to get in and out of if the stock becomes volatile.
After hitting a 52-week low of $21.40 on September 23, 2022, the share price of thinly traded ADR - AMG Advanced Metallurgical ( OTCPK:AMVMF ) - has soared, almost doubling by February 8, 2023, when it hit approximately $42.00 per share before pulling back to slightly under $40.00 per share as I write.
The company has been showing consistent growth over the last year and has guided for a boost in EBITDA for full year 2023.
In its recent earnings report the company said capital expenditures in 2023 will be in a range of $175.00 million to $200.00 million, with most of that targeted to the construction of its lithium concentrate expansion in Brazil and construction associated with its lithium hydroxide plant in Germany.
The combination of growth in those and other initiatives should result in the scale needed to cut costs further, which should result in an improvement in EBITDA for 2023.
In this article, we'll look at some of its recent numbers and how the next year looks for the company.
Some of the numbers
Revenue in the fourth quarter of 2022 was $390.00 million, compared to revenue of $330.4 million in the fourth quarter of 2021, an increase of 18 percent.
Pricing power in its AMG Clean Energy Materials segment was the major reason given for the improvement. Revenue in the unit was $176.00 million, up 53 percent in comparison to fourth quarter 2021. The segment was led by higher prices for lithium, tantalum, and vanadium, along with an increase in sales volumes of vanadium and tantalum concentrate. Full year revenues in the unit were up 53 percent from full year 2021.
EBITDA in the reporting period was $104.00 million, up 137 percent year-over-year. EBITDA for full year 2022 came in at $343.00 million, up 151 percent from full year 2021. Management guided for full year 2023 EBITDA to surpass $400.00 million.
Net income in the fourth quarter of 2022 was $61.00 million, or $1.85 per diluted share, compared to net income of $5.7 million, or $0.18 per diluted share for the fourth quarter of 2021. EPS for full year 2022 was $5.73, compared to EPS of $0.44 for full year 2021.
At the end of calendar 2022 the company had cash and cash equivalents of $346.00 million, compared to cash and cash equivalents of $338.00 million at the end of calendar 2021, and total liquidity of $532.00 million. Net debt held by the company at the end of 2022 was $330.00 million, with no short-term debt maturities.
Key positive catalysts
The three major catalysts going forward are the expansion of its spodumene production from 90,000 tons to 130,000 tons in AMG Brazil, which projected to reach full capacity in the second half of 2023, its AMG Engineering segment, and its lithium refinery in Bitterfeld, Germany, which is under construction, and will be the first lithium hydroxide refinery in Europe when operational.
As for the expansion of its spodumene production in Brazil, that will be an important contributor to lower costs and achieving its increase in EBITDA guided for in 2023.
Also, via its joint venture with Nippon Mining & Metals, the global leader in the tantalum downstream market, it'll be able to boost its production of tantalum from 2,060 pounds per year to 370,000 pounds per year, which is, and will be, a major contributor to the low cost of spodumene in Brazil.
The result from combination resulted in the company being able to sell product to China, from its Brazilian lithium facility, for an extraordinary $461.00 per ton in 2022. That comes directly from the added production of tantalum. And again, with the increase of spodumene production will come an increase in tantalum production, which should further drive costs down in 2023.
With its AMG Clean Energy Materials segment (which includes spodumene and tantalum production in Brazil) accounting for $80.00 million of the $104.00 million in EBITDA in the fourth quarter of 2022, it points to the fact that this is the most important segment of the company to watch at this time and for the foreseeable future.
One thing to take into consideration is that quarterly results from spodumene volumes can be lumpy because of shipment timing; this doesn't recognize revenue until the product reaches port in China. That's an issue because the company has very limited control on the scheduling. This is important to understand because one quarter could look weaker based upon the timing of shipments and recognition of revenue by AMVMF.
Led by significant orders of induction furnaces and turbine blades, AMG Engineering had new orders of $67.00 million during the fourth quarter of 2022, resulting in a 1.28x book-to-bill ratio. It added another $44.00 million in new orders in January of 2023, consisting mostly of turbine blade coater sales. That brought total order backlog to $220.00 million, the largest amount since March 23, 2020. That should be a major contributor to the performance of the company in 2023.
As for its lithium refinery in Bitterfeld, Germany, the company is expecting the first 20,000-ton module for the battery-grade lithium hydroxide upgrader to be commissioned in the first quarter of 2023. When it's able to access more resources to support more hydroxide modules, it'll increase in impact on the performance of the company.
Conclusion
When looking at the potential from the major contributors to the performance of the company, it appears 2023 is going to be a strong year for AMVMF. With its big upward move from September 23, 2022, already under its belt, the big question is how much of this is already priced in.
Assuming there are no major surprises in its spodumene shipments to China, and it's able to fulfill much of its backlog in induction furnaces and turbine blades, the company should maintain its forward momentum, with the caveat that it will depend on how the global economy does for the remainder of 2023.
If there aren't any deep and prolonged downturns to the economy going forward, then I think the company could push past the $50.00 per share mark based upon its expansion in Brazil and the backlog. On the other hand, if there is a major recession in 2023, I don't see the company meeting its EBITDA guidance, which would of course put downward pressure on the stock.
With the share price being elevated now and uncertainty concerning the level of interest rate increases from the Federal Reserve, I think it would be best to wait for a pullback in the share price of the stock before taking a position.
Another thing to consider is, there is very low volume when trading in the U.S. markets, and it could be difficult to get in and out at the desired price point if the share price gets volatile.
On a longer-term basis, I see AMVMF having a profitable future, and for those with a long-term investor horizon, it should be a solid holding if the entry price if favorable. I don't see that as being the case now, so waiting for a lower entry point would be the best move in my opinion.
For further details see:
AMG Advanced Metallurgical: Positioned For Solid 2023 Growth