Zinc is starting to look decidedly sexy.
The price of one of the most overlooked key metals built on the dizzying gains of the past few years to sit at US$1.87/lb, a 15% gain year-to-date.
This follows galvanizing metal’s 33% gain in 2002 and its 19% gain in 2021. So good times have arrived for zinc producers and explorers.
But you wouldn’t know that from their stock price performance lately, with a clear disconnect between stellar metal price performance and lackluster ASX-listed zinc stock price performance.
Zinc stocks aren’t the only ones out there. Iron ore, coal, copper, nickel and other mineral commodities are all trading at prices that analysts en masse see as temporary as the post-COVID global economic recovery wanes.
But new concerns over the physical supply of commodities sparked by Russia’s invasion of Ukraine and China’s priming of the pump in its economy mean higher prices are proving sticky. Equity values will eventually have to catch up.
In the case of zinc, the 2020 and 2021 price gains were all related to COVID-related supply constraints. This year’s price spike is entirely linked to the energy crisis in Europe, the result of the bloc’s mismanagement of energy transformation.
Europe accounts for around 40% of global zinc smelting capacity, but soaring energy costs pose a major threat to the viability of its smelter base.
Adding to the energy crisis, Russia, Europe’s largest gas supplier, has the potential to turn off the taps, further driving up energy costs for already struggling zinc smelters.
Massive shutdowns of European smelting capacity would drive metal prices crazy.
So overall, Garimpeiro believes the zinc space is interesting right now and stocks will soon catch up with the ongoing bullish outlook. After years in the shadows, zinc struts around.
Cheap ASX zinc shares? Glad you asked
Garimpeiro took a peek to see what’s on offer in the ASX zinc space, and as always, he’s avoiding the bulk of town in an effort to maximize equity leverage on sexy new prospects. zinc.
NEW CENTURY (ASX:NCZ): Trading at $1.90 for a market cap of $250 million. The most leveraged on the price of zinc on the ASX. Its zinc production – which ranks among the top 15 in the world – comes from a tailings reprocessing operation at the Century mine in north Queensland.
Tailings reprocessing isn’t the sexiest business. But hey, it makes a lot of money, especially at these prices.
In the December quarter of last year, the price of zinc averaged US$1.51/lb and the reprocessing operation generated a record quarterly profit of $40.4 million. This is rather attractive given NCZ’s market capitalization and current zinc prices.
The March quarter that is ending now could be a bit erratic due to the impacts of the rainy season, but watch out for the traditionally strong production quarters in the dry spell of the June and September quarters.
The company is also more than Century. It has taken over the historic Mt Lyell copper project in Tasmania, giving it one of the largest copper resource bases on the ASX outside of BHP and Rio Tinto.
The mine is mothballed, but NCZ is working to get it back into production, as you would at the current near-record copper price.
DEVELOP GLOBAL (ASX:DVP): trades at $3.28 with a market cap of $510m. Formerly Venturex, Develop is now run by the buzzy Bill Beament who took Northern Star (ASX:NST) from a terrible penny to the $12.3 billion gold powerhouse it is today.
Since switching to Develop, Beament has been quick to secure a game-changing deal: the acquisition of the Woodlawn zinc-copper mine near Canberra. Its development cost $340 million and came with a resource of 18.2 million tonnes grading 9.8% zinc equivalent.
Beament’s expertise is in underground mining and it is now working to expand the high-grade resource base from underground drilling rigs before returning Woodlawn to production.
Woodlawn joins Develop’s Sulfur Springs copper-zinc project in Washington State. Previous studies indicated an annual production potential of 15,000 t of copper and 35,000 t of zinc. But the Beament Factor suggests it will eventually be bigger and better.
RED RIVER (ASX:RVR): Trading at 22.5c for a market cap of $116m. Canaccord has a price target of 35 cents on this established (and expanding) producer of base and precious metals.
Its exposure to zinc comes from its Thalanga operation near Charters Towers in Queensland, where zinc is accompanied by copper, gold and silver. Credit these metals against zinc, and its zinc is cheaper.
Its earnings in the December half were as good as you’d expect for a company with a market capitalization of $22.4 million. Upside exploration is an ongoing story, and the company is preparing to add a gold-antimony leg by bringing the Hillgrove gold-antimony mine near Armidale in New South Wales back into production this year. .
ALICANTO (ASX:AQI): Trading at 10.5c for a market cap of $38m. Garimpeiro has mentioned Rumble (RTR) so many times before as a successful zinc-lead explorer that he thought it was time to find another zinc explorer to talk about.
So Alicanto gets a Guernsey.
He’s been exploring in Sweden and has recently created a bit of a buzz over the shallow, high-quality zinc-lead hits he’s been able to pull off recordings from the untapped Prince lode of his Sala project. Historical drill results were from up high where the company is drilling on the Prince vein.
The idea is that the Prince vein could merge with silver-lead mineralization from the historic Sala mine, which produced 200 million ounces of silver until 1962.