There aren't too many tin-specific companies trading on the ASX, and like many other minerals, the industrial metal has been outshone in recent times by gold and silver.
That's not to say there isn't robust demand, and like any mining project, if you can sell the stuff for more than it costs to produce, you're in clover.
This is the thesis behind a new research report from Morgans on Sky Metals Ltd (ASX: SKY), which forecasts significant share price upside.
Image source: Getty Images
Development plans
So firstly, what is the company up to?
Sky is the 100% owner of the Tallebung tin project in New South Wales, a historic tin mining region where the company to date has a mineral resource of 15.6 million tonnes at 0.15% tin, for 23,200 tonnes of contained minerals.
The company just this week announced to the ASX that extension drilling had hit prospective quartz vein structures beneath an extensive soil anomaly, "confirming the potential for repetitions of the Tallebung mineralisation to the south‑east''.
The company said its exploration efforts, "provide further strong evidence that the Tallebung system remains open in all directions, with significant potential for continued growth beyond the current resource footprint''.
The company is expecting to publish an updated mineral resource estimate in the first half of the year, incorporating what is expected to be more than 400 drill holes, up from just 115, which make up the current resource.
Sky Managing Director Oliver Davies said the recent exploration results were encouraging.
He said:
The combination of recent surface sampling, the discovery of new cassiterite‑bearing rock chips and successful extensional drilling continues to define new tin mineralisation well beyond the margins of the current Resource. This expanding footprint highlights the growing scale of the system and the opportunity for further high‑grade discoveries.
Shares looking cheap
Morgans has done its own modelling and calculated that, at a tin price of US$31,816 per tonne, the project, once brought into production, will generate $60 million per year.
At US$45,000 per tonne, that lifts to $113 million, and Morgans said the actual tin spot price was currently around US$55,000, "highlighting further unmodelled upside''.
The Morgans team has a speculative buy rating on Sky Metals shares, and a target price of 32 cents, compared with the current price of 17 cents.
The shares have already more than quadrupled from lows of 3.8 cents over the past year.
Morgans went on to say:
Tallebung provides investors access to a ASX-listed tin development opportunity, complemented by an established resource base and strong ore sorting amenability, which underpins a capital-efficient development pathway and project economics. Lead by a proven management team and spot tin prices sitting above both our base and bull case assumptions, we see Sky as well positioned to benefit from sustained tin price strength and supply-driven volatility.
Sky Metals was valued at $150.4 million at the close of trade on Monday.
