Zinc’s spectacular 48% price rise to $US1.40/lb from last (calendar) year’s average of 95c/lb is forcing a rethink on valuations across the bunch of near-development plays in the metal on the ASX.
It’s a case of valuations having to catch up with the runaway metal price. The biggest of the plays, New Century Zinc (NCZ) with its tailings retreatment plans for the mothballed Century mine in north Queensland, is a case in point.
NCZ has been a star performer since striking a deal early in the year to earn its way to 100% of Century, previously operated as one of the world’s biggest zinc mines by Chinese state-owned but Australian-managed MMG.
But with zinc now at $US1.40/lb – and with pessimists on the metal seeing a retreat in prices to no less than $US1.20/lb for the foreseeable future – the question is whether, like the other near-term developers that have had a good run on zinc’s strength, there is more petrol in the NCZ tank.
We could ask the ever-eager Tolga Kumova, who has a 15% (fully diluted) stake in NCZ. But for an outsider’s opinion, we’ll go to highly-respected analyst Cathy Moises at Patersons.
In a research report penned when NCZ was trading at 83c (August 21, and the stock is now 89c), Moises arrived at a base valuation of $2.20 a share..
Noting the valuation was a premium of more than 100%, Moises said it was despite her having used more conservative assumptions than those given by the company, with full rehabilitation provisions, low nominal value on other assets (Kodiak Coal and property holdings), higher capital expenditure and an extended ramp up period.
What’s more, spot zinc prices elevate the valuation. At the spot price, the elevated valuation worked out to $3.12 a share.
“Given the current shortage of supply for zinc, we believe it would be realistic to factor in these spot prices or higher for the short to medium term,” Moises said. It is a theme being played out at the other ASX-listed near-term zinc developers, or most of them anyway.
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