To Be Sure: ASX Zinc Stock Set for Drilling in Coming Weeks

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PUBLISHED: 28-07-2016 10:32 a.m.

11 minute read

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In today’s commodities sector, it could pay off to look for economically viable projects that could be the first into production when the next boom cycle arrives.

It is also a good idea to find the next big commodity.

While lithium has been all the rage lately, zinc prices are also on the move and zinc is widely tipped to suffer extreme shortages over the coming years.

The ASX company we are covering today has something more than just one alluring, potentially viable metals project.

It has anticipated the rise of zinc and now has multiple zinc projects in a country considered by some to hold the pot of ‘zinc’ at the end of the rainbow – Ireland.

This company has just raised $2.2 million and listed on the ASX, and is set to fire up the drill rig in the coming weeks on high potential walk up zinc targets.

Parachuting into Ireland, the heartland of zinc mining, this company has 7 high-grade Projects spanning over 750 km 2 , but it will start with a 1,000m diamond drilling campaign set to strike shallow, high grade zinc mineralisation at its priority project.

Ireland has become one of the most welcoming countries in the world for business, with Forbes named it literally the best .

As for zinc explorers going to Ireland, they would be heartened by the fact that it is one of the most prospective countries in the world in which to discover zinc – the country is home to Europe’s largest zinc mine and the sixth largest globally.

This company’s Projects are close to many other existing JORC Resources, including those of some of Ireland’s largest miners.

It is also in proximity to plenty of milling infrastructure which could assist in delivering some early cash flow to support ongoing exploration.

Further cheer comes from the fact that its prospects are mostly at shallow depth and have already included hits of 48m @ 12.2% Zn + Pb and 61m @ 10.3% Zn +Pb. While only a few holes have been drilled to date, those early results look promising at this stage.

So if this diligent minnow can get momentum going with its exploration, we could see a significant jolt in its valuation right off the bat.

Any valuation rise is pure speculation at this time and should not form the basis of any investment decision. If considering this stock for your portfolio, seek professional financial advice.

With fully funded diamond drilling imminent in the coming weeks and assay results expected within months, this company expects the catalysts to come thick and fast.

So, without further ado, we present a zinc play that may have all prerequisites to become a successful metals miner over the coming years, just as zinc comes into focus for investors:

Zinc of Ireland

Zinc of Ireland NL (ASX:ZMI) has just entered the ASX via a backdoor listing into an ASX shell (Global Metals Exploration NL).

The deal has allowed ZMI a quick entry on the ASX where it can raise the necessary capital to advance its masterplan in the hottest zinc mining area of the world: Ireland.

ZMI raised $1,369,000 via the issuing of approximately 170 million shares at $0.008 each together will options.

The placement was heavily oversubscribed and, with only limited oversubscriptions being accepted, ZMI ended up raising a total of $2.2 million.

Full details on the capital structure and placements can be read here .

Zinc is the fourth most mined mineral resource in the world, after iron ore, aluminium and copper.

ZMI selected Ireland as its zinc hunting ground, as the country is known as a world-class zinc province and remains a highly prospective region for zinc discoveries.

In 2007 Ireland produced 38% of Western Europe’s zinc, those figures are down today but it still rates in the top 10 countries for producing zinc and still maintains two of the world’s largest zinc mines in Tara and Lisheen.

These mines are now gradually losing their productive capacity, which represents an excellent market entry opportunity for ZMI.

Both the grade and quality of Irish zinc is extremely high in comparison to many other prospective zinc areas — which partly explains why the relatively small Emerald Isle has delivered such a high percentage of the world’s production.

ZMI wants to get in on the action in Ireland, given that future supplies are coming into question after several years of intensive mining, in parallel with hardly any new productive zinc mines coming online.

Let’s take a look at ZMI’s exploration area to see what it’s got itself into

ZMI has 7 separate and wholly-owned projects scattered around Ireland that cover a vast 750km 2 . Here they are mapped out:

Obviously, each project has varying specifics including geology, grade, quality and depth.

ZMI has some idea as to which ones are best to pursue first, but to really be certain it needs to complete a high-impact exploration programme.

Here at The Next Small Cap , we think ZMI has an excellent chance of getting a good start out of the ASX gate, especially when considering its rather tiddly market valuation in comparison to its underlying assets.

If we look at Ireland from a geological ‘mineral province’ perspective, it’s clear that ZMI has assets in each of the major mineral provinces in Ireland.

Having a diversified project list could potentially be indispensable for ZMI later down the track when conducting a Feasibility Study. If it can sufficiently firm up resources at its Projects, ZMI could potentially define an aggregated bulky JORC Resource that encapsulates all seven projects.

That is some way off for this early stage play at the moment, so apply caution to your investment decision if considering this stock for your portfolio.

In order to get ahead of the curve, ZMI raised approximately $2.2 million in connection with the deal, all of which will be going into its high impact exploration programme commencing in the immediate future.

As you can see it is now all systems go...

The Kildare Project represents ZMI’s flagship – for the time being

The Kildare project in Eastern Ireland is where ZMI is focusing its drill bit in the near term.

Kildare has a very standard lead/zinc geological system, which de-risks exploration. ZMI is also unlikely to be hindered by geological anomalies or uncertainties that tend to crop up at greater depths.

ZMI also has some initial historical exploration data that was used to narrow down its Project activity.

The table below highlights the successes of its peers in the region. Remember, Ireland is a tiny country, so decent results from its neighbours could translate to ZMI’s own projects.

Here are the historical results of those in the region.

In total, ZMI has a land holding of 750km 2 and will be selectively building up a Resource starting with Kildare and it hopes to join those past explorers in the history books.

In fact its Kildare Project could present early catalyst opportunities.

The Global Zinc Market

The global market for zinc went through the same trials and tribulations as all the other base metals in recent years. However, looking at historical prices, zinc seems to be on the way back and posting a strong trend so far in 2016.

After several years of downbeat pricing due to oversupply, the price of zinc has been climbing steadily from around US$1,400/tonne to over US$2,200/tonne today — that’s a gain of 57%.

Reuters reports that zinc is this year’s investment pick of the base metals traded on the London Metal Exchange (LME).

It is a big call, but one that investors are clearly taking notice of, especially when you consider the price of LME zinc for has risen by 42 percent since the start of January to a current $2,235 per tonne.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

ILZSG and FastMarkets forecast zinc consumption to continue its long-term trend growth, while supplies are dwindling:

Taking a look at what some of the analysts are saying, the indomitable Goldman Sachs is also calling a bottom in zinc at around the $1,500 a ton level. In an investor research note Goldman Sachs forecast a 12-month average zinc price of $1,800 a ton.

In a more recent analysis piece by the Sydney Morning Herald , the authors have even started referring to the recent buoyancy in commodities as a “commodities bull market”.

Analyst comments should of course be taken with a pinch of salt, are no guarantee of eventuating, and should be an addition to one’s own research.

But the fact remains that broader sentiment in commodities is visibly shifting.

And zinc is at the forefront.

Sector analysis

Zinc is mainly used for galvanising steel, car building, construction, appliances and electronics. As a base metal it acts as a de-facto bellwether in a similar fashion to copper.

Zinc is a strong indicator of economic growth and proxy for aggregate construction/manufacturing demand.

As the world economy reverts out of its ‘slowdown’ and emerging countries restart long-term construction programmes, the demand for zinc is expected to follow suit.

Furthermore, an ever-increasing middle-class in spare-capacity regions such as China, India, Eastern Europe, Russia and South America, is likely to ensure a healthy market for decades. As both population and income grows in emerging economies (while remaining high in developed countries) the long-term fundamentals for zinc remain strong.

Let’s take a look at how some existing zinc miners have been performing recently — amidst depressed zinc prices mind you.

Russia’s largest zinc producer made around US$76MN in EBITDA in 2015 — as living proof that if you can produce quality and quantity, there is a market even during a commodities downturn.

The case of Arizona Mining

One development path ZMI is sure to take notice of, and summarily attempt to emulate is Arizona Mining (TSX:AZ). This TSX-listed entity picked up a high-grade project in February 2016 in Arizona and has almost immediately began marching higher as a consequence. As you can see, AZ has appreciated from $0.40 to $1.80 so far this year:

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Meanwhile, South32 (ASX:S32), a multi-billion spin-off from BP, is tipping its ‘headline asset’ to deliver an EBIT increase from $545 million in the current year to $646 million in 2016, $756 million in 2017, $771 million in 2018 and ­$766 million the following year.

S32’s headline asset just happens to be the Cannington silver-lead-zinc mine in Queensland, Australia.

For ZMI, it intends to stake a claim in the zinc space, just as the market is turning around and builds momentum for another cycle — fuelled by renewed economic activity in developing countries and a greater interest in steel production by countries reaching an advanced level of development.

Here’s what veteran market analyst, John Kaiser had to say, when interviewed by INN:

Striking it lucky on the Emerald Isle

ZMI could be a compelling micro-cap zinc play that’s all about going back to basics.

Instead of overcomplicating matters with deep mines, elaborate exploration or delving into virgin territories, ZMI has picked out a diversified range of shallow, high grade projects near existing mines and toll mills.

The future development path is therefore relatively straightforward.

The prospect of price catalysts are also strong, given the “high-impact” drilling program set to kick off in the coming weeks.

Realistically, we could see assay results and (fingers crossed) a formal Exploration Target sometime in Q4 2016.

ZMI is only valued at around $15MN upon listing, and yet, this little leprechaun could potentially assemble a multi-million tonne JORC resource if exploration goes to plan and ZMI can knit together an all-encompassing Feasibility Study that aggregates all its projects into a single Reserve.

Again, this type of advancement is speculative at this stage, so apply caution to your investment decision with regard to this stock and seek professional financial advice.

The fact that ZMI is operating in Ireland — one of the most advanced zinc mining regions on the planet, and a country desperate to attract inward investment — means ZMI can enjoy comparative operational advantage that other zinc miners around the world simply do not have.

All in all, we’re pretty chuffed with boarding this emerald isle play that’s all about finding overlooked gems and commercialising them alongside a resurrection in metals prices.


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