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Within the GBC Group, GBC AG offers corporate analysis and research. Lyndsay Malchuk from Stockhouse Publishing recently sat down with GBC analyst Matthias Greiffenberger who has initiated coverage of Almonty Industries with a bullish outlook, projecting a 10X revenue jump over the next few years, and spotlighting Almonty’s Sangdong mine as a geopolitical game changer.
The following is a transcription of the above video, and The Market Online has edited it for clarity.
LYNDSAY: Well, let’s just kick this off and maybe here’s where we can start with your report. You highlighted the 15 year offtake agreement with Plansee as a core underpinning of Almonty’s valuation. From your perspective, how do you account for counterparty risk in your model, especially with hard floor price that could backfire in a downturn? I mean, really, if Plansee experiences demand softening or financial strain, what’s the downside scenario look like?
MATTHIAS: Well, first let’s have a look at this agreement. So it’s a 15 year offtake agreement with Plansee, which is fantastic for Almonty because, the offtake agreement has a hard floor of 235 MTU and there is no cap on upside.
So this is basically unheard of in the industry. And the reason for this is that Almonty has such a great track record, And also the hard floor is way below the current market price of tungsten, which is currently at, 363 MTU. So basically that alone is a big downside protection. And furthermore, Plansee is not just a customer.
They are also a 14%, shareholder. So their interest and their incentives are very much aligned and that lowers the counter party risk significantly. But, you’re absolutely right. The, the contract or no contract is without risk. So we have accounted for this by discounting the future cash flows of the project accordingly.
So, the risk is already priced in. And, let’s say, if Plansee were to ever face weaker demand, then we are pretty certain that Almonty could redirect its volumes, especially, because of their low production costs. And that makes, Almonty quite competitive.
I think there are so many other potential alternative buyers in the market, especially in the defensive industry or the semiconductor industry. Especially also, because Almonty is a non-Chinese supplier, so overall be priced in the risk. I think the Plansee contract enhances stability, but Almonty is not overly reliant on them in our opinion.
LYNDSAY: Almonty’s net loss nearly doubled year over year of working capital, it’s materially negative. And the balance sheet, you are showing that there’s still a rise. I mean, you’re betting still to maintain a buy recommendation. So can you walk us through the assumptions behind your confidence in the liquidity runway? How are you weighing dilution or refinancing risk in the broader valuation?
MATTHIAS: Almonty is at an inflection point this year. The company will, in our opinion, transition to a really important tungsten producer, and by that I mean the, the Sangdong asset will come online. So, the Panasqueira mine in Portugal is already producing, but, Sangdong will transform Almonty completely and will make them a really important player in the market.
Our valuation with the buy recommendation, as you mentioned, and the target price of $4.20 Canadian is based on the future cash flows that we expect. And, just for compliance reasons, I have to point out that our catalog of possible conflicts of interest can be found on gbc-ag.de
The sand on the mine is fully funded and near its completion, so we expect production to begin in the middle of the year, and this should lead to significant positive cash flows. And, as you said, the possible refinancing are, the risks in our opinion are manageable. I mean, IMO has the support of the KFW Bank, which is rare in this industry.
Because it’s a German government owned bank and that alone shows the somewhat low risk profile of the project. So we expect Almonty to enter its cash flow phase. And with the current geopolitical development, they have, quite the tailwinds.
LYNDSAY: Now your model assumes a fairly aggressive ramp up at Sangdong as well with throughput doubling just 12 to 18 months after first production.
So it gives you the conviction that this timeline is achievable, especially given the complexities of underground mining and historical delays in similar projects.
MATTHIAS: Well, you’re right, the project is quite ambitious. But in our opinion also achievable. And there are several reasons for this.
So, firstly, this is not a Greenfield project. It’s a redevelopment of a historical producing mine with known geology and existing infrastructure. Secondly, it’s a horizontal ore body, so it makes it easy to use drift mining. So production can grow without needing much expansion on the surface. And thirdly, Almonty has taken a face approach.
So the project is built step by step, and we expect that the experience management can deliver on their plans. Especially if you look at the CEO, Lewis Black and the whole team. They’re really experienced and I think they can pull it off. So, as you said, even if it comes to ramp up delays, the asset should deliver sooner or later really strong returns.
So, worst case there will be delays, but I think the strong returns can be expected nonetheless. So the bottom line is the Sangdong mine is not your typical mine because of all the legacy knowledge. The modern design and the face builds. So we are quite optimistic.
LYNDSAY: Let’s unpack that just a little bit more. You position Sangdong, as a strategic alternative to Chinese supply, but given that South Korea imports over 90% of its tungsten from China, how do you reconcile geopolitical narrative with economic reality? If China exerts pricing pressure once Sangdong comes online, how sustainable is the competitive edge you’ve priced in?
MATTHIAS: Great question and a really important one because yes, the South Korean government currently is getting most of its tungsten from China, but that’s basically the reason why Sangdong is so important. That’s not really contradictory because, Sangdong is going to supply South Korea and the South Korean government wants to secure domestic supply.
Furthermore, this aligns with the EU and US interests because they are all trying, to secure supply away from China. I mean, Almonty isn’t just replacing supply, it’s basically replacing vulnerability regarding China’s pricing power. So that’s a valid concern, but I think Almonty is in a very special situation here.
As we said in the first question. They have a floor price from Plansee, so they have a great contract where they have a floor price. I think the pricing power of China is very limited. And secondly, Tungsten is very, very low in cost. So they are cost competitive and they can deal with the lower prices.
So China already disrupted the markets, but, Western buyers are already actively trying to diversify. So we have applied a risk adjusted discount to the cash flows, and I think this reflects the reality.
LYNDSAY: Let’s look at the forward forecast. The forecast suggests a 10x revenue increase by 2027.
Can you break down how much of that growth is tied to de-risked fully funded production and infrastructure? And how much is based on assumptions still dependent on execution, permitting, or market timing?
MATTHIAS: Yeah, we expect that the management will deliver on the plans and the mine will come online soon. So the first phase is that the Sangdong mine will come online, which is already fully funded, and it’s almost done and it will start production, our opinion mid this year. And this will already lead to a big jump in revenue. Because there’s this off take agreement with Plansee. This should mean steady cash flows, even if there’s price disruptions in the market that we don’t expect.
Then in the second phase, they plan to double their production so that will be easily achievable in our opinion, because there won’t be much new infrastructure needed for that. On top of that, the Panasqueira mine in Portugal is consistently making money and they are already planning to expand the mine, and they don’t need additional permits for that.
So that’s another one. And also the optimal production will start in 2026 or 2027, which also adds to the revenue. So. That alone leads to significant revenue increases. And furthermore, there’s an oxide plan, which should not only increase the revenue, but also increase the margin.
It’s a very phased approach. And because it’s not all done at the same time, I think it’s very realistic to achieve this. And that’s why the, the big revenue jump is expected.
LYNDSAY: It was a great report that you did and there’s a lot of in depth, really insightful information there. We’re going to leave it here for now. Matthias, thank you so much for walking us through this and the thinking behind your coverage of all things Almonty Industries.
You can read the full report at GBC Research . I’m Lyndsay Malchuk with Stockhouse Publishing.
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