Explorer hopes for luck of the Irish amid mini zinc boom
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Zinc of Ireland hopes to celebrate with a few Guinnesses if a zinc project near Dublin lives up to its promise, writes Barry Fitzgerald in his weekly Garimpeiro column.
Zinc is selling for $US1.30 a pound which is up by a spectacular 30 per cent on its average price for (calendar) 2016. And analysts are tipping the metal could go higher yet.
They point to a similar inflection point in 2006 when low stockpiles, supply deficits, and strong demand for the galvanising metal saw prices soar beyond $US2 a pound.
Many investors are not so sure. They remember well that small producers in China, the so-called Ma & Pa operations, can kill off zinc booms by returning their small but collectively large operations in to production when high prices mean they can again turn a profit.
But this time it might be different, according to London’s Glencore — one of the world’s biggest zinc producers and commodity trading companies.
Glencore believes China’s environmental crackdown has “somewhat prevented the (zinc) industry from increasing production in response to higher prices, as in prior years, resulting in Chinese zinc mine production remaining relatively stable for the past three years”.
That is comforting stuff for the growing band of ASX-listed junior explorers looking to carve out a bigger future for themselves on the back of what might just be a structural rather than cyclical shift upwards in zinc prices.
And ever adventurous, there are those that have decided there might be richer pickings in overseas locations.
Zinc of Ireland (ASX:ZMI) is one them, with its name spelling out clearly that its focus is on the Emerald Isle’s rich zinc production history.
When it comes to zinc, Ireland is prime real estate as it has the highest tonnes of zinc per square kilometre production history of anywhere in the world.
That’s reflected in the location of ZMI’s Kildare project — 40km south-west of Dublin in a neighbourhood of past and present big zinc operations owned by others.
It’s been a busy 12 months for ZMI. It announced one of the biggest zinc resource estimates among the ASX juniors: 5.2 million tonnes grading 8.6 per cent combined zinc/lead at the McGregor and Shamrock prospects within the Kildare project area). And it notched up a new discovery — Celtic Tiger, near McGregor.
A new drilling program has just started at Kildare.
The initial focus is to follow up the thick and high-grade mineralisation encountered in previous drilling campaigns at McGregor. Success could lead to a resource upgrade later in the year.
A second drilling rig is due to arrive next month to drill some follow-up holes on the newly discovered Celtic Tiger which sits within 200m of the surface.
The drilling action comes as the market has ZMI trading at 0.7c a share, valuing the company at $8.7m, assuming the shortfall to the recent one-for-three rights issue at 0.5c a share is placed with investors.
Given its light market capitalisation, ZMI is a leveraged exploration play to the unfolding boomlet in zinc prices.
It also comes with a potential fast-track route to production should Kildare build on its early promise.
The fast-track is in the form of an 18-month option on a 650,000 tonnes-a-year lead-zinc processing plant originally used at the Galmoy mine, 70km from ZMI’s Kildare project area.
To exercise the option, ZMI would have to pay $6m in cash and $2m worth of its shares.
The plant is currently a long way from its Irish home, though. It now sits in crates in Darwin, of all places.
A Chinese group had originally intended to use the plant for an Australian operation.
But if ZMI’s ambition to become a zinc producer in quick time stacks up, the plant could well be making the long trip back home.
Barry FitzGerald’s Garimpeiro column appears weekly in Stockhead.
Barry has covered the resources industry for 35 years and has written for The Australian, The Financial Review and The Age. The inaugural winner of the Diggers & Dealers Media Award in 2003, Barry is a committee member of the Melbourne Mining Club, a non-profit organisation formed to foster industry debate.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.