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Why is Metals X up 78% in the past 5 months?

Over the past five months or so since 30 June, Metals X (ASX: MLX) has climbed in share price from $0.098 to $0.175.  The $290 million mining company by market capitalisation has had several reserves upgrades and an acquisition of two gold mines that have gotten the attention of the market, and strengthened its earnings prospects.

In July, the company reported that the total ore reserve of its Renison tin mine, which it owns 50%, had increased by 16% to 53,100 tonnes of contained tin metal, and total mineral resource was up 2% to 155,900 tonnes of contained tin metal.

Following that, the same mine had an upgrade in September, putting the total mineral resource up by 31% to 204,000 tonnes of tin metal.

In the same month, the company announced in that it will acquire the Australian business unit of Alacer Gold (ASX: AQG), which entails the 100% ownership of both the Higginsville and South Kalgoorlie operations. Alacer did this so that it can concentrate on its low production cost Copler gold mine in Turkey.

Since that announcement, Metal X’s share price has risen from about $0.12 to $0.175 currently.

The company said at its AGM that with the new gold mine assets, it expects its annual gold production should be about 150,000 ounces, and its gold resource inventory is at more than 13 million ounces.

Financially, at the end of the September quarter it had $72.5 million in cash and working capital and no corporate debt. In 2013 it achieved a $15.5 million NPAT before abnormals, up from a loss in 2012.  Net profit margin was 23. 5% and its current ratio is a solid 7.69.  Its book value per share is $0.17, just slightly below its share price.

For tin metal, the company estimates that the tin spot price will rise through 2014 due to expected low market supply of the metal.  As for gold, the spot price has fallen off over the past year from about US$1,700/ oz. to its current $1,261/oz. No one can say for sure whether it will go down further, even breaking $1,000/oz, but since June $1,200/oz has held as a temporary bottom..

Foolish takeaway

Since 30 June, the S&P ASX All Ordinaries Index (ASX: XAO) is up 22.4%, and during that time Metals X climbed 78.5%. It has been a rewarding time for its shareholders.

Investors in smaller mining companies have to have a long-term view of how the company is progressing, and there can be times when the cost of exploration and development causes annual losses and setbacks. Keeping close to the news and staying even closer to the company reports and announcements should be a regular habit if you want to be a part of the growth story.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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