The following is an extract from the report.
THREE KEY POINTS
- The KAS share price moves with the tin price. Past deviations have been good buying opportunities, the present time may be another.
- Octa Phillip is bullish on tin prices, even though apparent demand in 2012 has been much more subdued than expected. However, supply will struggle, especially with the closure of the 38kt/yr San Rafael mine in 2017.
- We assume a long run tin price of $25,000/t which is not a bullish assumption give the lack of projected supply and the cost curve. Using this, we get a base case valuation of
35c/share (45c/share un-risked).
KAS: Tin producer in 2015, into a good market
KAS is funded to deliver its DFS by the end of 2013
In March 2012, KAS executed an agreement with the Japanese trading company, Toyota Tsusho, for Tsusho to pay $16m to KAS in 3 stages, with the third payment being made after the PFS was delivered in June 2012.
In March 2012, KAS announced a Resource of 14.6Mt at 0.9% Sn for 135kt of contained tin.
KAS has recently increased its drilling rate and has completed 40m infill drilling to be able to upgrade its resources to Indicated and be included in the DFS mining plan.
KAS is now drilling the eastern zone, which should lead to an increase in the total of the Resources estimate. A revised resource statement is expected to be announced by March 2013.
Octa Phillip is bullish on tin
Tin demand has been unexpectedly subdued during 2012. ITRI attributes this to some de-stocking and a shift to smaller size electronic goods (eg. tablets v. desk-tops).
However, supply continues to struggle. In a global market of about 360kt, the closure of San Rafael in 2017, which produced 38kt in 2011, will be difficult to replace and the
present known projected are unlikely to fill this gap, without any increases in demand.
The price projections we have used are less bullish than those published by ITRI.
KAS has 80% of the Achmmach project, which is expected to begin production in 2015 of 5,600t/yr of tin in concentrate; it is a significant project.
KAS executed over 11,500m of diamond core drilling in the September quarter on Achmmach and began drilling at the Bou El Jaj prospect nearby.
Our risk adjusted valuation is more than twice the current share price, so upgrade our recommendation to Buy