High coal consumption at a time of high prices prompted China to enforce limits on its heavier industries earlier this year, and while demand for most metals initially slumped owing to the effect on construction, copper quickly rebounded, people accepted the necessity of coal, and tin remained in extreme supply deficit during a time of national lockdowns.
This put the DRC in particular in a great position thanks to its existing relationship with China with respect to minerals exports, its unusually massive concentrations of mineralized ores, and it being a planned beneficiary of the Belt & Road Initiative (BRI) as a developing country that desires industrialization.
Fundamentals
In 2021, China released metal stockpiles to the market to bring down prices, limited coal consumption for a bit to lower pollution, then switched to a moratorium on coal imports with coal production targeted at 12 million tonnes per day to see the power stations through winter. Commodity prices are usually shaken by these market interferences, but most revert to their original macroeconomic trend fairly quickly.
Macroeconomic fundamentals, however, are largely about whatever China is doing, and considering the long term, China continues to invest heavily in up-and-coming industrial nations while winding down its own mining operations. Of these up-and-coming producers, the DRC, and Alphamin Resources in particular (being fairly junior), stand out as having enormous potential to benefit from climbing copper and tin prices at a time of tight undersupply, especially when other major tin players are struggling to grow.
The tin market has been in a small supply deficit for years, but the pandemic squeezed the tourniquet around the already stressed supply chain, temporarily closing many mines, pushing smaller producers out of the market and forcing China to take action to control prices. Well-established tin miners in China did increase 2020 output while others remained in lockdown, but with the world back online, the country will likely move towards increasing ore imports owing to its commitment to reducing pollution on the mainland and developing new industries overseas.
Five of the world’s ten largest tin producers in 2020 were in China, contributing almost half of global tin supply. Over the next ten years, we expect this to decline slightly on the back of China’s development goals, opening the way for tin producers around the world to take a place in the top ten as published annually by the International Tin Association (ITA).
There are a number of companies with access to existing trade routes that will likely benefit most significantly should China favour imports over production. These companies are prepared to meet escalating demand by bringing new sources online in jurisdictions that benefit directly from Chinese investment.
The Successors: Alphamin (TSX.V:AFM) escalates production at Mpama North and Mpama South
With inventories at rock bottom, new mine production has become somewhat urgent, but developing new projects is a decade-long endeavour. It’s far more likely in the medium-term that existing producers outside of China will respond to climbing prices and declining inventories by increasing production.
The most likely candidate is second-largest producer, Indonesian PT Timah, owing to its established capacity and relative proximity. However, production fell by more than 40% during 2020 and the company has been loss-making since 2019. PT Timah is also embroiled in conflict with Indonesian fishing communities that oppose the company’s offshore mining operations, which has the potential to limit production in 2021 and beyond.
On the contrary, work at Alphamin’s Mpama mine is progressing smoothly. The company recently announced record Q3 2021 EBITDA guidance of US$53m, a net debt-free position and improved recoveries. The company’s outstanding 2021 performance was thanks to increased tin production and sales volumes coupled with a higher tin price. Had Alphamin’s output been at this level in 2020, the company would have come 6th on the ITA’s top-ten producers list.
Production is escalating at Mpama North, and Mpama South is rapidly advancing. Just 750m south of the existing mine, 69 drill cores from Mpama South have already been sent to the lab. While the complete results will not be released until 1Q2022, 57 drillhole results have been received with an average grade of 2.7%-8.5% Sn.
Considering that Mpama North was already considered the richest tin deposit on the planet at 3.5 – 4% tin in cassiterite, this planned mine to the south could protect the operation from diminishing grades for a significant period of time. Where PT Timah is impeded by fishermen, Alphamin is on the brink of expansion.
Alphamin has spent the last few years growing production and improving the company’s cash position, practically guaranteeing medium-term success in a starved tin market. But considering the bigger picture, the company has many years of China-backed growth to look forward to.
Investing in Africa
No doubt this year’s measures by China were in response to the immediate crises in energy consumption and the price of coal, but funding the industrialization of developing countries via the New Silk Road (NSR) has been a highly publicised strategy of the PRC since Xi Jinping announced the Belt & Road Initiative (BRI) in 2013.
The NSR is essentially a transcontinental Amazon warehouse whose purpose is to move raw materials one way and finished goods the other, only really quickly. So far, China has invested hundreds of billions in factories, railways and ports in more than a dozen nations, predominantly across Asia via rail, and Africa largely via the port of Mombasa.
China has also contributed significantly to strengthening logistical infrastructure between African countries, having already financed and built a $4 billion railway between Djibouti and Addis Ababa, and another connecting Nairobi to Mombasa, which will eventually run through Uganda and Rwanda to reach the Democratic Republic of Congo, where Alphamin, Glencore and Metorex are busy industrializing the extractive industries.
Closing remarks
The result of all of this is ideally that the number of industrializing and post-industrial civilizations in the world will increase, and the construction of those places and the goods they will consume will drive demand for commodities and consumer products alike.
Current semiconductor production tells us something about future tin consumption: the more chips that are delivered to clients, the more circuit boards need printing and assembling – and the largest semiconductor manufacturer in the world reported no issues with production owing to any of the state actions this year.
Tin consumption is expected to continue to increase year-on-year over the short, medium and long-term, and supply may remain stunted in the short-to-medium term should China continue to favour imports over production.
Alphamin’s Mpama mine in the DRC stands to benefit profoundly from high prices and continuing Chinese investment in African resources. Additionally, being a producer with costs in the lowest quartile means surviving challenging situations such as those we’ve witnessed over the last couple of years.
Alphamin’s share price has been on a consistent uptrend for more than a year, recently settling at C$0.98 during the first week of November, up $0.10/ share from a month earlier with no sign of stopping.
Potential comparables
Alphamin Resources Corp (CVE:AFM)
Rapidly expanding high grade tin-deposit on-track to becoming a major player in global tin supply.
Timah Tbk PT (IDX:TINS)
Second largest producer in 2020. Experiencing some issues with resource expansion. Hit hard by Covid.
Yunnan Tin Company Ltd (SHE:000960)
World’s largest tin producer. More likely to be affected by power restrictions than other elements of the tin market.
Taiwan Semiconductor Manufacturing Company Ltd (TPE:2330)
Reportedly unaffected by power outages and continuing apace.
