How to invest in tin: a crucial metal whose price is set to soar

Have you heard the one about the commodity in short supply and rising sharply owing to demand from China? It’s the narrative that never stops giving, and this time the protagonist is tin. Tin prices are at highs not seen since 2011. The metal we associate with cans and pan alleys is essential to the rapidly-expanding global electronics industry, semiconductors, the rollout of 5G mobile communication networks and the Internet of Things (IoT), whereby more and more appliances and gadgets, ranging from toasters to self-driving cars, are connected online.

It is a key ingredient of the substance that binds together circuit boards and wiring, otherwise known as solder. Around 50% of annual tin demand is used in this way; it is considered “the glue of metals”. Electric vehicles, where tin is used in lead-acid and lithium-ion battery technology, also mean increased tin demand, as does homebuilding, particularly in the US, where tin is used in chemical stabilisers added to PVC pipes and cladding. There is its traditional use in tin plating and copper alloys, and also its expected future use in such exciting technology as solar photovoltaic (solar electric systems), thermoelectric materials, hydrogen generation, fuel cells and carbon capture catalysts.

A record supply squeeze

Meanwhile the supply side has been hit. A ten-year bear market has discouraged investment in new mines and existing facilities. The largest tin producer is China, but many of its smelters and plants have seen production cuts or closure. Myanmar was another large producer, but thanks to all its political problems exports have fallen. Latin American supply has faced the twin demons of Covid-19 and depleting resources. Supply from Indonesia has fallen by around 40% thanks to Covid-19 and environmental issues. CRU, a consultancy, says supply lagged behind demand by 8,000 tonnes in 2020, making three consecutive years of deficits. The 350,000-tonne market will see a deficit of 2,700 tonnes in 2021, according to the International Tin Association. 

Inventories on the London Metal Exchange (LME), where most of the world’s tin is traded, are at record lows, just as China has been stockpiling to meet its goal of self-sufficiency in semiconductors. LME stockpiles stand at little more than two days of global consumption, when a year ago, they were seven times higher. Off-exchange inventory is also thought to be at critical levels. In 2006 environmental analyst Lester Brown said we would be out of mineable tin by 2026. Some might say Brown’s forecast is coming good. I’m not a great one for peak commodity theories: higher prices usually sort a market out and that is what we are seeing. Higher prices mean uneconomic mines can be brought back into production, while scrap tin, recycling and secondary production become more profitable. Tin was one of the first metals human beings ever used, so much so that it has its own day, Thursday, and a planet, Jupiter, associated with it. It is one of the “metals of antiquity”, and people were using it in the Bronze Age more than 3,000 years ago. I rather suspect, despite the predictions of Brown, tin is not yet making its last cry. What we are seeing is just an old-school bull market. 

Tin stocks to consider

It’s hard to buy tin directly. To play this market, one must look to the miners, and pure plays are in short supply.  Strategic Minerals (Aim: SML), for example, is just attempting to re-open one of Cornwall’s old tin mines – good luck with that – but its main focus is a copper mine in Australia.

Another example of a company trying to bring closed mines back into production is Cornish Metals (Aim: CUSN). It is exploring, developing and looking to re-open two Cornish projects, including the famous South Crofty Mine, which closed in 1988 after 400 years of continuous production. Cornish Metals has been popular, but I have to say, as a Cornwall-phile, I’m not sure how amenable the environmentally-conscious powers-that-be there will be to the re-opening of its mines, despite current progress. 

I’m happy to be corrected on that, by the way, and, in any case,  that doesn’t mean there isn’t necessarily a shorter term play to be had. It should be noted that Cornish tin mines actually going back into production (still a few years away even if those companies get their permits) is often a sign that the market is topping.

If you want a successfully producing mine, consider Canada-listed Alphamin (TSX Venture Exchange: AFM), market cap around C$700m, which has low-cost, profitably producing mines in the Democratic Republic of Congo. If that particular jurisdiction does not appeal to you, I wouldn’t be surprised, but the mine is currently producing well.

As for a penny stock that could make your investment go up by several multiples or lose you everything, consider Afritin (Aim: ATM). In addition to tin projects in South Africa it is in the course of bringing the Uis project in Namibia, once the world’s largest open-cast tin mine, back into production, and this week announced that its “tin production concentrate production totalled 194.5 tonnes for the fourth quarter, representing a 28% quarterly increase compared with the previous quarter, and exceeding the 180 tonnes production target. Total production for the 2021 financial year amounted to 473 tonnes of tin concentrate.” 

So far, so good then – though I am currently being trolled on Twitter by a chap with greater mining knowledge than my own, who says the mine can’t work and that it is too dependent on the lithium and tantalum by-product to be economic. My view is that higher tin prices will solve that. 

Bottom line: It’s a bull market. Everything flies in a bull market. But it’s also an Aim-speculative mining play. While there is the potential to make your investment back many times over, there is a lot that can go wrong. Stay around for a good time, but not a long time. 

Full disclosure: I own Alphamin and Afritin.