Barry FitzGerald: Looking for lead in all the wrong places? Pacifico pops up
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Lead loses out in the base metals’ glamour stakes to copper, nickel and zinc.
But if investors were on board with the Galena Mining (ASX:G1A) story early this year, they would know that the metal’s lack of glamour does not necessarily hold back share prices when the story is right.
Investors who got on board with Galena’s near-term development plans at its Abra lead-silver project in WA’s Gascoyne region have done very nicely, thank you very much.
The stock has more than doubled since the start of the year to 36.5c for a market value of $145m.
The share price run has been without the help of the lead price either. Lead fell 20% in the first half of this year from the previous corresponding period but has since stabilised at US94c/lb, which is roughly what most analysts consider will be its long-term average.
With its financing coming together and the entry of Japan’s Toho Zinc in to the project, the Abra project is shaping up as very profitable producer for Galena.
Today’s interest though is in who might be next in the lead stakes. Up pops Pacifico Minerals (ASX:PMY), trading at 0.9c a share for a (undiluted) market value of $20m on the strength its Sorby Hills lead-silver-zinc project near Kununurra in WA’s East Kimberley region.
It was a 0.6c stock a month ago, with the 50% share price gain since no doubt aided by the savvy Euroz Securities initiating research coverage of the stock on July 11 with a price target of 2.5c. Achieving the price target would take Pacifico’s market cap to beyond $50m.
“We believe that should Pacifico deliver a successful optimised preliminary feasibility study … then a market capitalisation of more than $50m is reasonable based on the comparison with Galena and Venturex (ASX:VXR, a $50m company planning the development of the Sulphur Springs copper/zinc project in WA).’’
“There are few projects owned by juniors with capex of less than $100m that have the potential to become long life, high margin operations,’’ Euroz said. It added that Pacifico could ultimately be worth multiples of its (then) $14m market cap.
There were some if and buts in all that, most notably further confirmation work on the ability to beneficiate the ore, upgrading the mined lead grade prior to concentration. Then there is the issue of funding the development, priced in a preliminary feasibility study at $95m.
Still, the PFS – which is being optimised – did point to robust economics for Sorby Hills, originally discovered in the 1970s and parked up inside various distracted owners before Pacifico came along to pick up 75% of the project last year.
The 25% partner is China’s biggest lead smelter operator and its biggest silver producer, the state-controlled Henan Yuguang.
The non-optimised PFS envisaged an initial 8-year mine life at a mining rate of 1mtpa, with life of mine production put at 249,000t of lead and 9.35m oz of silver.
Capital payback was estimated at 16 months.
Cash costs for lead production (excluding silver credits) was put at a robust US29c/lb which underpins the forecast for steady state average annual cashflow of $A60m, which is interesting stuff given Pacifico’s current modest market value.
“The quality of the project and quick capital payback suggests Sorby Hills could support a high level of debt,’’ Euroz said in last month’s initiation report.
“Other financing options could include; offtake finance, a streaming deal, traditional equity or a percentage sale of the project. A deal with its joint venture partner (ie project equity for Pacifico equity) could be value accretive,’’ Euroz said.
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