Elementos (ASX:ELT) to acquire interest in Spanish tin smelter


by Manny Anton

Elementos Limited (ASX:ELT) Managing Director Joe David discusses a recent agreement to acquire up to a 50% interest in an operating Spanish tin smelter.

Manny Anton: I'm Manny Anton for the Finance News Network, and today we are talking with Elementos Limited (ASX:ELT). Elementos, trading under the ASX code "ELT", has a market capitalisation of approximately $25m. Elementos is committed to the safe and environmentally conscious exploration, development and production of its high-grade tin projects. Elementos owns two world-class tin projects with large mineral resource bases and significant exploration potential in mining-friendly jurisdictions. Joining us today is Elementos Managing Director Joe David. Joe, welcome back to the network.

Joe David: G'day, Manny. Great to be back with you.

Manny Anton: So, Joe, the company has just released an announcement with the news that you have signed an agreement to acquire up to a 50 per cent interest in an operating Spanish tin smelter. Can you tell us a little bit about the agreement itself?

Joe David: Yeah, absolutely. So, at this stage it is a term sheet agreement, although we're deep into the final stages of due diligence and the binding documentation set. What it is is we purchase shares off the current shareholders for about 1.2 million euros, and then it includes a capital investment into the company of about 2 million euros. So, total value of about 3.2 for us to take a 50 per cent stake of the smelter. Critically, for us, this smelter is located 220km by road from our project. This is virtually unheard of in the tin sector, where basically all the smelter capacity for global miners like ourselves is based in Asia. So, for us to move towards a solution that we get not only a local smelter solution but one fully integrated within Spain and fully integrated within the European Union just ticks so many boxes that we've been chasing strategically.

Manny Anton: Can you tell us a little bit more from a synergies perspective? Can you tell us about the CRM synergies, the tin smelting and soldering company which owns a facility and which will be your 50 per cent partner?

Joe David: Yeah, so they are an established... They're a Spanish company, but they have international operations in Brazil, Mexico, and they sell a lot of their product into Europe and North America, so they've got offices around the world. They predominantly… They do smelt tin concentrate. They also produce a lot of tin from residue material and tin scrap material. So, very established producer. I love their responsible way they've gone about it of basically recycling a lot of their tin. And their focus is less on producing tin ingots, although they do do that and sell it to the market. They consume a lot of their own tin and move it into downstream further than we're even talking of going, into the soldering, into the soldering paste and all these bespoke products. They do produce responsible tin because tin tantalum and tungsten have had to be reported for many years due to the conflict mineral nature of a lot of the sites where it comes from. That reporting is firmly established, and CRM are already a certified group by most of the global auto manufacturers, electronics producers, all the big names. If you go through their responsible and due diligence reports, CRM is there. So, these guys are very good at what they do and have a fantastic reputation. So, for them to show the interest and the faith in us to come in as a strong partner… And obviously there's a synergy there, as you said -- they're always chasing more tin. So, the fact that we will be producing tin at a combined smelter, there'll always be the option to be selling tin to them as our customer and then consuming it further downstream for themselves. That's not part of the deal we've done, but it's certainly an opportunity that we'll explore in the future.

Manny Anton: Is your intention to truck the material to the smelter?

Joe David: Yeah, it is, but it's a tin concentrate, so it is in the same form as if we were sending it through to the Asian tin smelters. We get it up to about a 62 to 64 per cent grade concentrate. That's an international seaborne grade. But instead of, as you said, trucking it to a port, sending it halfway around the world to Malaysia, Thailand or China, we'll now be doing it 220km away. So, the cost benefits to us are substantial. The carbon reduction of producing responsible tin is substantial. And the other thing that we put in our announcement is absolutely key for us and what makes it such a fantastic deal is there's actually a premium for tin above the London Metals and Shanghai published prices for tin delivered in Europe and tin delivered in North America. So, from Spain, those two markets are very accessible, and the average 12-month price of those premiums is somewhere in the order of $750 to $1,000 premium above the published price, which far exceeds what we're modelling the treatment and refining costs for this product. So, economically, another fantastic outcome for us.

Manny Anton: Can you tell us a little bit more about the smelter itself from an operating capacity perspective? And also what's the potential there, or is there any potential there, to expand the current operating capacity going forward?

Joe David: Absolutely. And part of our deal is actually to expand the facility and the quality produced and the throughput. So, historically, it was a lead smelter. There were a number of owners. It did lead shots, it did ammunition. It also, in its more recent history, you know, about 10 years ago, was doing lead acid battery recycling, all which need a big rotary furnace, which is the key to this facility. In 2021, our partners CRM took it over, and in 2022 they installed a new rotary furnace. So, the actual key asset of this is very new. It is estimated somewhere between… Depending on which products you put in, it sort of changes the overall throughput. But we're somewhere between 8,000 to 10,000 tonnes of tin being fed into that. For us, what we produce from our Spanish project would be about 5,400 tonnes of feed. So, there's already extra capacity there from what we require. So, the licences far exceed that current throughput. Our reading and working with our partners, it looks like it's closer to 20,000 tonnes. So, there's space for it, there's a licence that allows it. Basically what's yet to do is to finalise the engineering plans and obviously source more feed to put it into it. But certainly you've identified that upside and it's certainly something which has encouraged us about this deal, that this can get bigger and more tin mines can feed into it.

Manny Anton: Okay. And let's turn to the Oropesa Tin Project itself. How important is this agreement to the development of the Oropesa Tin Project, and in particular to the timeline of the project delivery?

Joe David: It is very what we believe economically, strategically, politically, very valuable. But I guess it's worth pointing out the agreement that we are doing is an option agreement, and it has up to a five-year terms for us to take that 50 per cent. So, we will maintain our flexibility throughout this process too, if it does… anything flips unknown, to be able to move the concentrate through to other smelters. And additionally we might feed this smelter from another project close by. So, for us, there's optionality in this deal, which is fantastic. These deals are very closely linked, but not directly partnered. So, we clearly think the path will be for the Oropesa concentrate to go through this smelter, but it's not an absolute requirement of the deal we've done. In terms of the Oropesa Project on its own, we announced a very clear way forward about a month ago now on our environmental permitting, but the conversations we're having with the government officials, all our approvals are on the Andalusian level. This asset sits just across the border in Extremadura, but we are having conversations on the national level. You know, the European Union is so focused on having domestic supplies of both mines and production facilities like this, and the Spanish government is very aligned with that European Union goal. So, we are having conversations on a national level to try to facilitate, you know, further linking of these two projects.

Manny Anton: Let's move to the tin market itself. So, it looks like the timing for this announcement has been pretty fortuitous. Tin prices are very strong. They're up, in fact, over 40 per cent this calendar year already, including what looks like a significant move overnight. It was up 4.5 per cent in London. Can you make some comments around the tin market itself and what you're seeing?

Joe David: Hey, we're very encouraged by what we see. You know, it's been flagged for a fairly long time that the tin market's going into deficit. Been flagged a long time that two of the three largest producers of tin are having major supply issues. The London stockpiles are dropping. The Shanghai stockpiles, which were growing the first bit of this year, have looked like they've turned and started to drop away, which I suspect is the reason for the significant movement overnight. But what's clear, there's been a 40 per cent, 40-plus now what 45 per cent, increase this year because everybody in the market is seeing what we're seeing, and that is impending deficits. And there has been so little investment into the tin sector over the last 20 or 30 years. We're only one of a handful of companies, maturing projects, to feed into that. So, yeah, the market looks pretty tight right now and certainly looks like we're moving into deficits probably faster than a lot of the commodity forecasts that previously identified, due to those, I guess, supply shocks that have happened in the last six months. So, for us, as I said, we're one of a handful of tin developers out there. We're probably maybe one of two with two projects. Our other asset is obviously in Tasmania. The price is above all our assumption, our technical assumptions. The price is currently above the previous revenue assumptions we've had in any of our scoping studies. So, for us, fantastic time to be in tin.

Manny Anton: Yeah, it looks very, very exciting, certainly, to be in that space. All right, well, to wrap it up, let me ask you, what can investors and shareholders expect to see in terms of news flow over the remainder of 2024? What should we be looking for?

Joe David: Yeah, I guess now we're talking about three defined assets. Obviously we'll be updating the market as we close out this transaction. We will be updating the market as we progress our Spanish approvals on the Oropesa Tin Project. We do have a DFS slated for the end of 2024, so we'll also be releasing that. We are looking at doing some potential exploration drilling in and around the Oropesa Project as well. The resource remains open in a number of zones. And we are currently drilling in our Tasmanian asset down the north-west of Tasmania. So, we'll be putting out some announcements in the next little while regarding the drilling there. And obviously the future plans for more exploration drilling down in Tassie.

Manny Anton: Joe, thank you for your time today. That was great. We hope to get you back soon with further updates on your exciting progress. Until then, have a good one.

Joe David: Thanks Manny, appreciate it.


Manny Anton

Sequoia Financial Group
Manny has over 30 years’ experience in financial markets, banking and corporate advisory. He previously worked at UBS, Credit Suisse and RBC, covering equities and equity derivatives, both domestically and internationally, based in London, Hong Kong and Sydney. Manny has also worked with corporates in IR and development in the energy and resources sectors.

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