Tantalum mining & processing
As with Cobalt, most of the world supply comes from (illegal) mining in Congo, Rwanda & Burundi. AMG delivers conflict-free Tantalum, which is clearly an asset nowadays. There were some issues last year, such as a fire in 1 of the 2 productionlines and a contract termination by their customer 'GAM'. AMG did not agree with the decision of GAM, causing the conflict to be continued in court. The production line is back on steam since the end of september and insurances paid for all damage. Meanwhile, AMG is selling all of its Tantalum in a 1-year contract in 2018. Signing a long-term contract is likely undesired due to the GAM court case. The GAM-contract was very profitable, supposedly around 130 $/lb. Spot prices were 96$/lb on the 2nd of March, and still rising, according to AMG's latest presentation. That's 14% higher than the average for Q4 17.
One of the most important applications of tantalum is in the production of electronic components, mainly for portable electronics.
Further reading: an older Roskill report on Tantalum - although the info on AMG is wrong in this report.
AMG Vanadium is the sole producer/recycler of FerroVanadium (FeV) in North America (NA). They have LT contracts for processing and recycling spent catalysts from a major oil refinery in North America. This is a very cost effective and environmentally friendly way of processing FeV. The fact that there are no competitors left in NA demonstrated the strength of AMG and its portfolio. AMG has LT contracts with downside protection, which guarantees profitability when prices are on the lower side of the bracket. At current prices of 34 to 35 $/lb, the impact on AMG's revenue will be very significant. Indeed, this business was already highly profitable in 2017 when the average price was aprox 15.4 $/lb. The great news is that AMG will expand its business by 30% at the end of 2019 (if they get environmental approval, which which is unlikely to be a problem since it is a critical material in NA). Dutch bank ING expects the expansion to impact Ebitda by $ 12,5M in case FeV prices normalize, or with $ 27,5M if prices stay high. FeV prices were approx. 27$/lb when in their latest analyst report. If prices remain where they are now, there would be even more upside to their bull case.
Why are Vanadium prices that high? It's a mixture of reasons. Chinese environmental restrictions lowering their output significantly, new rebar standards in China, and higher demand for Vanadium redox batteries.
AMG Titanium Alloys and Coatings is a world leader in the production of advanced materials for the aerospace industry and the largest qualified provider of TiAl feedstock for all major commercial turbine engine manufacturers. AMG signed a contract with Pratt & Whitney two years ago. This industry is growing fast because of the worldwide trend for CO2 reductions. This business comes with a high backlog and great visibility. Fast growth is expected in the coming years. AMG installed extra capacity last year.
AMG has a very solid balance sheet, with $ 10,3M net debt or a 0,1x Net Debt/Ebitda. Their credit facilities have recently been renewed, resulting in up to $ 650M to be spent. The company is unlikely to need this soon, since they can finance most of their growth projects with their strong free cashflows.
There is a small and manageable pension debt, which most companies do with the current low interest rates.
AMG runs solid free cash flows. Working capital movements and use the maintenance capex are excluded to calculate the FCF. In 2017, AMG produced up to $ 68M FCF, which was a great result. It should be taken into account that the maintenance capex was up $12M (after few years in austerity mode from '13 to '15) from their expected LT maintenance capex (Mcapex). With a normalized Mcapex, the FCF could have been $ 80M. In 2016, FCF was $ 47,1M. But that year, there was a one-off payment of $ 23M for their pension scheme. Without that payment, FCF would have been $70M. Clearly, great cashflows can be expected from their current business, and most of their projects can be financed with current cash flows.