Guy on Rocks: Zinc is on a tear and this small cap is a contender
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Guy on Rocks’ is a Stockhead series looking at the significant happenings of the resources market each week.
Former geologist and experienced stockbroker Guy Le Page, director and responsible executive at Perth-based financial services provider RM Corporate Finance, shares his high conviction views on the market and his “hot stocks to watch”.
There’s been a few rumblings in China which have got a few people nervous, but it looks like that will come to a head shortly. Touch wood we don’t have any adverse impact on iron ore.
I mentioned zinc last week, that’s been performing pretty strongly all year. There’s been a few more supply cuts, with Vedanta Zinc suspending the Gamsberg mine after another accident.
Zinc is now trading up at almost $US1.30 ($1.79) a pound. That’s been extremely strong and the metrics around that look pretty good.
We’re coming into cyclone season up until February/March next year, so I’m expecting a bit of strength in the iron ore price over the coming months.
On some of the previous mentioned projects, American Pacific Borates (ASX:ABR) is making good progress on construction at the Fort Cady borate mine.
The company is pouring concrete, so it’s going through a bit of a boring phase of building, but it seems to be on track and getting that phase-one project up and running on time.
The big news around town has been Chalice Gold Mines’ (ASX:CHN) phenomenal performance, which is going from strength to strength.
Chalice has a 1.6km by 800m zone that it’s been following up at its Julimar project and continues to deliver phenomenal results like 50m at 1.8 grams per tonne (g/t) palladium, 0.5g/t platinum, 0.9g/t gold, 0.2 per cent nickel and 1.1 per cent copper.
It just goes from strength to strength and it’s turning out to be a world class project by the look of it.
Another one I’ve mentioned before is Traka Resources (ASX:TKL), which has been trading in that 2c to 2.3c range.
But significantly, Medallion Metals has lodged a prospectus for its IPO in the last couple of days.
Traka has a lot of ground in and around Medallion, which has come out with a feasibility study based on 8.5 million tonnes at 2.3g/t for just over 600,000oz, about a 5.5 year mine life and looking to sell about 320,000oz over the life of mine. So pretty small scale.
Traka, meanwhile, is gearing up to do some fairly aggressive exploration and we expect them to be drilling fairly soon.
I think there’s some potential M&A activity or some sort of deal if Traka can outline 100,000oz to 200,000oz.
I think that will mean something to Medallion having a plant being constructed right next door. It will potentially provide a processing option for Traka’s deposits should exploration be successful.
I think Traka at around 2c-2.1c is pretty cheap and I think it’s going to move back up towards 3c over the next couple months.
We had a presentation on a zinc explorer called Alta Zinc (ASX:AZI) on Wednesday, which has an advanced project in Italy just up to the north, not far from Turin.
What I didn’t know was how much current mining activity there was up in that part of the world, given most people in WA associate that area with skiing.
That part of Italy is not well known in Australia, but I think there are 20 or 30 mines operating in the Lombardy/Piemonte region.
Alta’s Gorno project was mined many years ago, and there’s been a history of mining around there since the 1700s.
In fact, a lot of the areas are old hammer and tap mines from 200 or 300 years ago, but this project I think could get to somewhere between 7 and 8 million tonnes.
It’s a classic Mississippi Valley type (MVT) lead-zinc-silver deposit with very little modern exploration.
It produced about 6 million tonnes at 14.5 per cent zinc and lead. It can produce a very clean concentrate and there’s lots of options for smelters in Europe.
Alta currently has a resource of just under 3.5 million tonnes at about 4.9 per cent zinc, 1.3 per cent lead and about 27g/t silver. But I think that’ll go up. They’ve got a fairly aggressive plan to bring this project back into production in the next two years.
The company has a pretty experienced board. Geraint Harris is the mining engineer based in London. He’s ex-Lisheen in Ireland which is another lead-zinc MVT deposit.
Bob Annett, who was associated with Adriatic Metals (ASX:ADT) which had a great run, has come back out of retirement.
Alta has been a bit unloved by the market with zinc not being the most popular metal in the last two years, but I think that is turning around.
The company has about $4.5m in cash as of the end of September, about 3.6 billion shares on issue, and an enterprise value (EV) of around $14m (market cap + debt – cash) with no debt. There’s a little bit of an overhang from the options, which are a bit out of the money.
Alta Zinc (ASX:AZI) share price chart:
And with the directors having worked on these types of deposits before, the company has an excellent chance of making it all happen.
Alta is looking to start production in quarter one of 2024, but I think the market, in the short term at least, is probably more interested in the resource inventory.
The company is looking to get that resource out, to sustain an 800,000 tonne to 1 million tonne operation, by the end of the second quarter of 2022. So I think the news flow should be pretty good.
The other new one that’s popped up is Caravel Minerals (ASX:CVV). The junior explorer has an advanced copper-gold-molybdenum porphyry project just north of Boddington in WA. It’s a large low-grade resource.
Caravel is currently suspended pending the completion of a capital raising of around $2m at 8c a share. I think that’s been oversubscribed.
The stock closed Thursday at 9.2c, giving it a market cap of about $23m and an EV of about $19m.
Caravel Minerals (ASX:CVV) share price chart:
It’s pretty low grade but the scoping study was pretty positive, highlighting a capex of around $450m and net present value of over $1bn.
The project has very good logistics and very low mining costs. I think if the copper market improves in the next year there’s a reasonable chance of finding a partner to do something with that.
The other thing avid Stockhead readers would be interested in is Caravel has a couple of other layered mafic opportunities in the southwest.
What I thought was interesting was down in the southwest there’s a few Julimar lookalike structures, in particular the Mt William intrusive, which is a nickel-copper-PGM target.
Caravel has a farm-in agreement with Round Oak Minerals. The terms are being finalised but it’s not far from Waroona, about 100km south of Perth.
There’s an intrusion present that strikes about 3.5km, which compares to about 1.6km at Chalice’s Gonneville intrusion. It’s a similar size and age to Julimar.
One of the negatives is it’s in a state forest so there’s a bit of negotiation with Alcoa, which has got a mining lease over it, but I think that access will come eventually.
Caravel spent about $500,000 to earn 51 per cent, so a pretty soft joint venture. There’s been some pretty interesting soil anomalies to come out of there, so I think that’ll be one to watch.
At RM Corporate Finance, Guy Le Page is involved in a range of corporate initiatives from mergers and acquisitions, initial public offerings to valuations, consulting and corporate advisory roles.
He was head of research at Morgan Stockbroking Limited (Perth) prior to joining Tolhurst Noall as a Corporate Advisor in July 1998.
Prior to entering the stockbroking industry, he spent 10 years as an exploration and mining geologist in Australia, Canada and the United States.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.