Barry FitzGerald: No gas, no smelter. These ASX zinc stocks are suddenly looking cheap and sexy
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Zinc is starting to look decidedly sexy.
The price of one of the most overlooked key metals has been building on the heady gains of recent years to be standing at $US1.87/lb, a gain of 15% since the start of the year.
That follows on from the galvanising metal’s 33% gain in 2002, and its 19% gain in 2021. So good times have arrived for the zinc producers and explorers.
But you would not know that from their share price performances of late, with a clear disconnect opening up between the metal’s stellar price performance, and the middling price performance of the ASX-listed zinc stocks.
Zinc stocks are not alone there. Iron ore, coal, copper, nickel and other mineral commodities are all trading at prices that analysts en masse think are temporary because global economic stimulus post COVID is waning.
But fresh concerns about the physical supply of the commodities brought on by Russia’s invasion of Ukraine, and China’s pump priming of its economy, means the higher prices are proving sticky. Equity values will have to catch-up eventually.
In the case of zinc, the 2020 and 2021 price gains were all about COVID-related supply constraints. This year’s price spurt is all about the energy crisis in Europe – a result of the bloc’s mishandling of the energy transformation.
Europe accounts for about 40% of the world’s zinc smelting capacity but the soaring cost of energy is threatening the viability of its fleet of smelters in a major way.
On top of the energy crisis, there is the potential for Russia, the biggest supplier of gas into Europe, to turn off the taps, sending energy costs for the already challenged zinc smelters higher still.
Mass closures of Europe’s smelting capacity would send metal prices crazy.
So all in all, Garimpeiro reckons the zinc space is in an interesting one at moment and that equities will be catching up with the on-going bullish outlook before long. After years in the shadows, zinc is strutting its stuff.
Garimpeiro has had a look around to see what is on offer in ASX zinc space, and as always, he is steering clear of the big end of town in an effort to maximise equity leverage to zinc’s new and sexy outlook.
NEW CENTURY (ASX:NCZ): Trading at $1.90 for a market cap of $250 million. The most leveraged to the zinc price on the ASX. It’s zinc production – it ranks in the top 15 in the world – comes from a tailings retreatment operation at the Century mine in North Queensland.
Tailings retreatment is not the sexiest business around. But hey, it makes good money, particularly at these prices.
In the December quarter last year the zinc price averaged $US1.51/lb and the retreatment operation generated record quarterly earnings of $40.4 million. That’s kind on interesting given NCZ’s market cap, and current zinc prices.
The now concluding March quarter might be a bit scratchy because of wet season impacts but watch out for the traditionally strong production quarters in the dry up there of the June and September quarters.
The company is more than Century too. It has picked up the historic Mt Lyell copper project in Tasmania, giving it one of the biggest copper resources bases on the ASX outside of BHP and Rio Tinto.
The mine is mothballed but NCZ is angling to bring it back into production, as you would at the current near-record copper price.
DEVELOP GLOBAL (ASX:DVP): Trading at $3.28 for a market cap of $510m. Formerly Venturex, Develop is now led by the bustling Bill Beament who took Northern Star (ASX:NST) from a penny dreadful to the $12.3 billion gold powerhouse it is today.
Since moving on to Develop, Beament has been quick to pull off a game-changing deal – the acquisition of the mothballed Woodlawn zinc-copper mine near Canberra. It cost $340 million to develop and came with an 18.2 million tonne resource grading 9.8% zinc equivalent.
Beament’s expertise is in underground mining and he is now getting his teeth in to expanding the high-grade resource base from underground drilling platforms before returning Woodlawn to production.
Woodlawn is in addition to Develop’s Sulphur Springs copper-zinc project in WA. Previous studies pointed to the potential for annual production of 15,000t of copper and 35,000t of zinc. But the Beament factor suggests it will end up bigger and better.
RED RIVER (ASX:RVR): Trading at 22.5c for a market cap of $116m. Canaccord has a 35c price target on this established (and expanding) base and precious metals producer.
Its zinc exposure comes from its Thalanga operation near Charters Towers in Queensland where the zinc comes with copper, gold and silver. Credit those metals against the zinc, and its zinc comes for less than no cost.
It’s earnings in the December half were as good as you like for a company with its market cap at $22.4 million. Exploration upside is an ongoing story, and the company is preparing to add a gold-antimony leg by returning the Hillgrove gold-antimony mine near Armidale in NSW to production this year.
ALICANTO (ASX:AQI): Trading at 10.5c for a market cap of $38 million. Garimpeiro has mentioned Rumble (RTR) so many times before as a successful zinc-lead explorer that he thought it was to time find another zinc explorer to talk about.
So Alicanto gets a guernsey.
It is exploring in Sweden and has created a bit of a buzz recently on the shallow and high-grade zinc-lead hits it was able to pull from the records at the unmined Prince lode at its Sala project. The historic drill results were from above where the company is drilling on the Prince lode.
The thought is that the Prince lode could merge with the silver-lead mineralisation at the historic Sala mine, a producer of 200 million ounces of silver up until 1962.