Tin soldiers on, but some miners are retreating

If you want to plot the “mother of all disconnections”, take a look at the price of tin on the London Metal Exchange and overlay the share prices of Australia’s handful of tin-focussed stocks to discover that one is going up and the others are going down.

On the LME, traders turned tin into the top performing metal in 2012, not that much news of that achievement made headlines as iron ore, copper and other minerals claimed the lion’s share of investor attention.

On the ASX, most tin stocks have slipped lower over the past 12-months with one, Consolidated Tin (CSD), enjoying a moment in the sun thanks to a deal to buy a mineral processing plant out of the failed Kagara Mining that is located close to Consolidated’s Mt Garnet project.

But, since a dash from 5c to 12c late last year, Consolidated has eased back to around 10c, a price which gives the stock a modest market capitalisation of $18 million.

It is in the stockmarket value of tin stocks that another problem lurks for potential investors. Tin might be classified as a non-ferrous metal alongside its better-known cousins copper, nickel and zinc, but it only just avoids being classed as a minor metal because of modest worldwide production levels, and that means most tin-mining (and exploring) companies are small.

Putting aside the equity trading challenges, it is hard to ignore the remarkable divergence of the price of the metal and the share prices of two of the more closely followed ASX-listed tin stocks that have projects getting closer to a development decision – Kasbah Resources (KAS) and Venture Minerals.

Since June 30, the cash price of tin on the LME has risen by 40% from US$17,800 a tonne to US$25,075/t.

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Over the same time, the share price of Kasbah has not moved. It has been stuck at 17.5c despite making steady progress with a definitive feasibility study at its Achmmach project in the north African country of Morocco – with location discount almost certainly a factor in investors shying away.

Venture Minerals is devoid of the location discount, unless Tasmania is to be regarded as risky as Morocco. It is on the west coast of Tasmania that Venture is working towards the development of its Mt Lindsay tin and tungsten project, and its share price has fallen by 31% from 28.5c to 19.5c since June 30.

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Metals X (MLX), the biggest of Australia’s listed tin stocks via its half-share in the historic Renison mine, also on the west coast of Tasmania, has managed to gain ground since the middle of 2012, just, rising by half-a-cent from 14.5c to 15c. Investors are possibly confused by the company’s other assets, including an expanding gold division and an ultra-remote nickel project at Wingellina near where the borders of Western Australia, South Australia and the Northern Territory meet.

No investment adviser worth his fee will be suggesting that a client pile into ASX-listed tin stocks which, as far as I can tell, number about eight, with tin exploration targets on the books of a few other companies.

But, for anyone with an eye on what seems to be an interesting arbitrage situation (where a price gap opens between different markets), tin could be worth a closer analysis because the falling ASX share prices are directly contradictory to a worldwide shortfall in tin production as demand rises in its many industrial applications, particularly as a health-linked substitute for lead in solder.

Tin stocks worth a look are:

Metals X, thanks to its Renison position and status as Australia’s biggest tin producer. Output at the mine, which is half-owned by a Chinese company, was running at 1,800 tonnes in the December quarter, with the 900 tonnes attributable to Metals X worth a notional $22.5 million at the latest tin price, well below the current cash production cost of $A12,560/t. On the market Metals X is capitalised at $247 million, making it easily the biggest of the tin stocks, though separating the gold and nickel divisions from the tin is not possible.

Kasbah is planning to bring the Achmmach project, located about 180 kilometres from Morocco’s capital, Rabat, onstream by 2015, in conjunction with a Japanese partner, Toyota Tsusho Corporation. Pre-feasibility studies, which have been fed into the current definitive study, point to a mine generating an internal rate of return of 23.8% at a tin price of US$21,961, well below the current LME price.

Venture has completed a bankable feasibility study into its Mt Lindsay project, which put a net present value on the proposed development at $550 million. As a starter mine, Venture plans to extract small but high-grade pods of iron ore, which will generate useful early cash ahead of work on the main tin and tungsten mine. Ongoing exploration success on Venture’s Tasmania tenements adds to interest in the stock.

Consolidated Tin, now that it has the Kagara plant, is moving to finalise its pre-feasibility study into its Mt Garnet project, with the processing plant just nine kilometres from Consolidated’s Gillian tin deposit. The company’s target is to become a producer of about 5,000 tonnes of tin a year.

Other ASX-listed stocks with tin interests include: Stellar Resources (SRZ), which owns the Heemskirk project in Tasmania, said to be the highest-grade undeveloped deposit in Australia. Wolf Minerals (WLF), which is developing the Hemerdon tungsten project in the UK county of Devon, with tin as a useful by-product. MGT Resources, which is exploring at Mt Garnet, and Stratos Resources (SAT), is planning to acquire an interest in an Indonesia tin prospect.

Tin-market indicators worth looking at include:

• Indonesia, which provides 40% of the world’s tin, is producing at its lowest level in 10 years as mine-grades fall and new “purity” rules are enforced.
• A survey of tin-interested analysts by the Bloomberg news service last week produced a consensus tin price for 2013 of US$28,750, up another 14.6% on the current, already high, price.
• Multiple tips from commodity forecasters that tin will be one of the top performers in 2013, including London-based CRU, which has it at No. 2 (after palladium). Zug (Switzerland) based Tiberius Asset Management is forecasting that tin will be one of a handful of metals “facing a sustained market deficit”, and Morgan Stanley last week tipped a 3,500 tonne shortfall in tin supply (up from an 800 tonne shortfall tipped as recently as October).

As an arbitrage situation the tin market versus the market in ASX-listed tin stocks is fascinating, but it is tricky because there are few easy entries into the metal, and because all the participants are small an exit could be even harder.