Metro Mining generates 2019 EBITDA of $44 million

Metro Mining Ltd (ASX:MMI) continues to surprise on the upside, advising today that it had generated EBITDA of $12.6 million from sales of $69.3 million in the December quarter.

While the bauxite producer had already informed the market that it had achieved annual production of 3.5 million wet metric tonnes in 2019, representing the top end of management’s guidance, it wasn’t until today that Metro released quarterly earnings.

This should be well received by the market, as it brings full-year EBITDA to $44 million.

Ahead of these figures being released, Morgans’ analyst Chris Brown was the most bullish in terms of the brokers covering the stock, forecasting EBITDA of $39 million.

Consequently, this represents a substantial ‘beat’ and may have brokers upwardly revising valuations, share price targets and possibly their 2020 earnings estimates.

Brown currently has a valuation and price target of 35 cents on the stock, implying upside, albeit speculative, of more than 100% to Wednesday morning’s opening price of 16.5 cents.

With the mine expansion expected to result in production increasing to 4 million tonnes in 2020 and 6 million tonnes in 2021, Metro offers some of the best metrics in the mining sector for investors targeting emerging high growth companies.

The group’s market capitalisation of around $220 million suggests there is substantial share price upside based on enterprise value to EBITDA metrics.

These figures will look even better when the company hits full production in 2021.

Prior to today’s release, Brown was forecasting EBITDA of $82.6 million, implying an extremely conservative forward enterprise value to EBITDA ratio of less than three.

Offtake agreements account for large proportion of sales

All production during the December quarter 2019 was sold and shipped to Chinese customers and deliveries were within contractual specifications.

Approximately 2.3 Million WMT of the 2019 production was sold under the long-term off-take agreement to Xinfa, underlining the income predictability that this arrangement offers.

Under this contract, prices received were linked to an RMB (Renminbi - official currency of the People’s Republic of China) denominated alumina price index.

Pricing of the rest of 2019 product sales was linked to the prevailing spot market price.

Average price received for the December quarter was in line with the June and September quarters.

Stage II expansion on track and on budget

Work proceeded on the detailed engineering and design work related to the Stage 2 expansion.

Rocktree Consulting (EPCM Consultants for the Floating Terminal) are tendering for the long lead time items and the project costs remain in line with DFS estimates.

At the end of the quarter, tenders had been received for all major work packages.

Based on current industry dynamics, Metro should continue to see substantial demand for its product, and indeed be able to find buyers for its extra 2 million tonnes come 2021.

China’s November bauxite imports were up 11.4% to 7.2 million WMT (month-on-month).

Year to date imports were 10 million tonnes higher than the same period last year and total 2019 imports were on track to exceed 100 million tonnes for the first time.

As indicated below, imported bauxite prices CFR China, as measured by the CBIX bauxite index, remained at recent levels of US$50.80/DMT (dry metric tonne).