Metro Mining - MMI

Bauxite miner Metro Mining (MMI) popped up on FNArena last week with a very bullish report by Shaw & Partners.

This was followed by a very positive investor presentation from the company.

Short summary:

1. bauxite production will increase from around 4 mmtpa to potentially 7 mmtpa. Cash cost per tonne should drop
2. time frame for ramping up is less than 2 years
3. fully funded so (hopefully) no need of a value-destroying capital raising but the debt is quite expensive at 12% pa + options
4. the ore is loaded onto the ships by barge/floating crane. They need a second floating crane which is being built in Germany - I'm not clear when that will be delivered
5. the mine expansion should be low risk as it only requires stripping over burden - I'd like to look into this a bit more
6. mine life is 17+ years
7. outlook for bauxite demand is positive (aluminium is needed for a number of green technology applications among other traditional uses) and both the broker and the company point to positives on the supply side with Indonesia curtailing exports and China's domestic production declining. Bauxite prices have moved up this year but some of the existing production is locked in at old prices – I am still getting my mind around the different grades and how much production is locked in and at what prices
8. they have agreements in place to sell some (or most?) of the increased production to Chinese buyers – still trying to understand the pricing
9. the broker's forecast is to be net cash by the end of 2024 and with annual free cash flow higher than the current market cap after that. If this transpires, MMI is a potential multi-bagger

Apart from risks of lower prices and adverse FX movements, the biggest risk would appear to be delay in achieving the ramped up production levels and/or delay in deliver of the second floating crane. In the short term debt levels appear quite high (and at 12% the debt is expensive) so delay would be the major risk factor.

I take all brokers' reports with a pinch of salt and the disclosures at the end of the Shaw & Partners reports shows they have been consistently bullish for a number of years even as the share price has slid downwards. Likewise, MMI's last few results have been disappointing.

The risk/reward looks very attractive to me.

Both the Shaw & Partners report and MMI's own presentation are available on MMI's website: https://www.metromining.com.au/

Disclosure: held