Classification of Sphene Capital GmbH to Almonty Industries Inc.

Extension of the off-take agreement increases planning certainty

Almonty has significantly expanded its long-term off-take agreement, in place since 2018, with Global Tungsten & Powders (GTP), a subsidiary of the Austrian Plansee Group. The agreement relates exclusively to production from Phase I of the Sangdong mine and will in future cover around 90% of the tungsten concentrates produced there. The contract term has been extended to 21 from 15 years and will therefore run until the late 2040s. At the same time, the contractually binding supply volume has increased by 40% to 4.41 million MTU, which, once full production capacity is reached, corresponds to a minimum annual purchase of 210,000 MTU. Particularly positive is, in our view, the renegotiation of the pricing formula: for all contract volumes, the realisable selling price will increase by an average of 6.3%. Based on the current APT price level, management expects this to generate additional revenue of at least USD 30 mn per year, or around USD 630 mn over the entire contract term.

The contract amendment took place immediately after the Sangdong plant commenced operations and, in our view, significantly improves the visibility of future cash flows. At the same time, it confirms the mine’s strategic importance for Western supply chains. GTP is one of North America’s leading manufacturers of tungsten powders and supplies customers in the US defence and aerospace industries, amongst others. Against the backdrop of Chinese export restrictions and a structurally tight tungsten market, GTP is thereby securing long-term access to conflict-free tungsten produced outside China. From our perspective, it is also worth noting that the agreement covers only production from the first phase of development. The planned Phase II, which is intended to roughly double the mine’s processing capacity, is not part of the contract, nor is production from Almonty’s other mines. This leaves Almonty with a significant share of future volumes that can be marketed at a later date – possibly under even more attractive market conditions.

Reflecting the continued and, in our view, sustainable strength in tungsten prices, we raise our price target to CAD 38.90 from CAD 37.40 per share. Our updated valuation incorporates higher GTP payables and current APT tungsten prices for Sangdong, revised forecasts for Panasqueira, Gentung, and Los Santos, and a discounted valuation of the Valtreixal development project. This implies an upside of 102.1% from yesterday's closing price of CAD 19.25. We view the recent share price weakness as a buying opportunity and reiterate our Buy rating for the shares of Almonty Industries.