Unless stated otherwise, all figures are in U.S. dollars
A.I.S. Resources Limited (TSX-V – AIS, OTCQB: AISSF) announced the signing of a contract with an agricultural product manufacturer to supply 1,000 tonnes of manganese every two weeks for 12 months. At the current grade & benchmark price, this contract would generate gross revenue of about $550k a month. That would amount to $7.1 million over the course of 12 months.
Readers may recall that management estimated operating cash at about $100/tonne. 26,000 x 100/t = $2.6M/yr. The manganese (“Mn“) sales price of $5.60 Dry Metric Tonne Unit (“DMTU“) for 49% Mn was negotiated at a 1.75% discount to the Platts Mn 44% CFR lump benchmark price of $5.70 per DMTU (that’s $5.70 per 1% of manganese content).
The press release explains that three hundred tonnes of high-grade manganese has been loaded into 12 containers on a loose basis (eliminating the cost & logistics of loading tuff bags) at Lima Port in Peru. The next shipment of 500 tonnes is expected to depart on August 15th. The voyage to Tianjin, China is typically about 36 days, give or take a day.
A.I.S. has been working closely with its contract miner to open the Victor mine, which is contiguous to the San Jorge mine. The company’s geologist and mine engineer have visited the mine and have completed mine design plans. Additional mining equipment is arriving that will enable operations to be expanded after overburden is removed and benches are put in place.
President & CEO, Phillip Thomas stated, “I am delighted we have signed a long-term contract with a substantial buyer on very attractive terms. Our logistics team is working very efficiently and we have improved our loading process, eliminating the cost of tuff bags. We have engaged Impala / Trafigura to provide shipping & export services, resulting in substantial savings. This contract underpins our expansion plans. As soon as we reach 5,000 tonne shipments, we will move to break-bulk Handymax shipping and realize further savings.”
Great news for A.I.S., steady progress towards 10,000 tonnes/month
This is great news for the company as it gives investors line of sight to over $2 million in annualized operating cash flow (assuming $100/tonne operating profit). This manganese trading operation is first and foremost a complicated logistics arbitrage opportunity. Solving the logistics is 80% of the battle.
By logistics I mean finding RELIABLE buyers & sellers, RELIABLE workers in Peru, and arranging for RELIABLE, safe, shipping from the mine sites to Chinese ports. If A.I.S. can do all of these things, RELIABLY, then the profits will flow. But, they have to walk before they can run. Don’t get me wrong, so far so good. A.I.S. management is taking this slow and steady, which is a very prudent approach to perfecting complex logistical operations.
The other 20% of the battle is dealing with changes to a well-oiled machine, things like weather disruptions or trade restrictions, changes in inspection or loading protocols in Peru or China, etc.
The next 3-6 months will be critical in assessing A.I.S.’ staying power in this new venture. If they can prove that this complex, multifaceted logistical chain works, and if Mn prices remain strong, then 10,000 tonnes / month should be attainable. Today’s news gets them 21.67% of the way to a 120,000 tonnes/yr. run-rate. Now the question is, how soon might they reach that run-rate?
Many readers still consider A.I.S. as solely a lithium brine junior with assets in Argentina. That’s a big mistake. The company’s Mn trading business is more important this year, but experts I trust think that lithium investor sentiment will rebound next year. A year from now investors could be sitting on a profitable Mn trading business that comfortably funds active exploration and/or development of lithium brine projects, in a setting of renewed, or possibly even strong, interest in battery metals.
Management calls 10,000 tonnes per month a short-term goal. I take that to mean they expect to reach that level by year end. If they can execute on that plan, then I believe the share price could move a lot higher as investors realize that 10,000 tonnes / month is soon at hand. It’s not necessarily soon at hand today, but it could be in a few months.
Hundreds of deeply over-sold, unloved metals & mining juniors are desperate to find ways to generate cash flow and avoid excessive equity dilution. Some are, quite literally, turning to cannabis…. By contrast, A.I.S. has turned to Mn trading. Unlike metals & mining management teams who claim they (suddenly) know how to run a cannabis start-up, Phil Thomas and his team certainly have experience running a metal trading operation!
While it’s probably too soon to start valuing the company (today) based on 10,000 tonnes of Mn per month, it’s not too soon to start thinking about what a company generating millions of dollars in annual cash flow might be worth in 3-6 months (when, presumably, the logistics have been largely proven). I’m still working that out myself, I don’t have an answer, but the following chart shows some cash flow scenarios.
Readers are cautioned from jumping immediately to the bottom right of the chart. Clearly, if A.I.S. can generate eight or ten or 12 million USD$ in annual cash flow, the stock is a great bargain at current levels. However, remember all of the many things that have to go right between now and consistent deliveries of 10,000 tonnes. As I said, so far so good, but we are not there yet!
Today’s market cap offers true believers in the Mn trading operation a buying opportunity as those who are less confident wait for more information, more news, more certainty. With greater certainty, a de-risking of the venture, comes a higher share price. I look forward to further updates and remain happy with the progress made to date.
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