BMR Mining Share Discussion Threads

[qsmeily456] 08/10/2015 17:53

These Options vest as follows:

-- 25 per cent. immediately;

-- 25 per cent. on the first announcement of interim or year-end results following successful testing of the pilot plant;

-- 25 per cent. on the first announcement of interim or year-end results following first revenue from a commercial sale of product from the production plant; and

[liveit2] 08/10/2015 16:48

About time we started motoring again. Can we climb up a metal staircase. Yes but we have to clean those gaps between our toes.

AB get those cotton buds out and start cleaning.

[99jeremiah] 08/10/2015 13:26

It can take up to 8-10 years and into the billions of $$$ to bring a big mine on stream. The question is who has that kind of spare cash to invest and then wait for the best part of a decade for some kind of return?

As for our own resources, they are small in comparison, but I'd still imagine that if we could tick over by processing the tailings and then use the profits to prove up the resources in the mine, we might just be in a great position in a couple of years where the zinc price is way up and people are paying top dollar for good quality in-the-ground zinc/lead assets. Perhaps a future $100m-200m price tag for the mine might not be out of the question?

[fireball xl5] 08/10/2015 12:51

Nice to read something Zincing Zinc will find a higher price.

Nicholas Bodnar, Nicholas Bodnar (566 clicks)

Playing The Deficit In The Zinc Market For Expected Higher Prices
Oct. 8, 2015 4:32 AM ET | Includes: NSU, TCK
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

There is a current deficit in the zinc market in which consumption is higher than production. Going forward, the deficit will continue to widen.

Experts actually expect that all of the current zinc reserves will run out sometime between 2027 and 2055. If they are right, higher zinc prices are on the way.

The price of zinc started falling due to missed expectations this year starting in May. What is interesting is that the deficit is still there.

A mine that produced 4% of the zinc globally is expected to shut down within a year. The biggest zinc mine in Europe is also shutting down this month.

Market experts expect that China's consumption of zinc will grow by 5% annually going forward. This is bullish for investors long zinc.

A few months ago, I ended up doing research on a company called Nevsun Resources (NYSEMKT:NSU). The main thesis was based on the company being a deep value play. There was another portion to the thesis as well. This was to buy the company due to its high reserves of zinc it owned. Thus, it was a simple thesis. Buy the company for the deep value play mixed with expected growth due to high zinc reserves. If you didn't know before, zinc is a resource whose consumption is higher than the supply.

Any first year economics student should be able to tell you that the former disequilibrium (between supply and demand) will cause the price of zinc to appreciate in value. This is exactly what this commodity has done (until around May, when they came crashing down).

But what is driving the demand for this commodity and what is going on with the supply? Before we get into the demand drivers and the supply chain, let's take a look at what zinc is actually used for. To tell you the truth, before I did this research, I had no idea what zinc was used for.

This article will highlight the following questions.

What is zinc used for?
What are the worldwide reserves of zinc? Are they growing or shrinking?
What the current disequilibrium means for investors indirectly tied to the zinc market.
How investors can play the disequilibrium to their advantage.

I hope this article will provide value to my readers and investors interested in the commodity of zinc. Feel free to message me if you have any questions.
What is Zinc Used For?

Source: Zinco

Did you know that zinc makes up ~75 ppm (0.0075%) of the Earth's crust? What this means is that zinc is the 24th most abundant element present on Earth. Do you know exactly what zinc does, or what it is used for? If you are like me, you probably do not know much about zinc. Since we have all heard the rumors that the production of zinc is faltering while demand is increasing, should we not learn exactly the importance of zinc in our business world? I think this former question yields a yes. If you are an expert on zinc, then you may want to skip this section of the article, for I am sure it may be an opportunity cost. On the other hand, if you are interested in learning exactly what we use zinc for, keep reading, you may learn something.

Source: Periodic Table

Large scale production of zinc never really started to take place until the 12th century. Up until the 16th century, zinc was not known of in Europe and produced mainly in India. Back in the Old Kingdom, zinc alchemists burned zinc in order to make philosopher's wool otherwise known as white snow. Thus many speculate that zinc was named by Paracelsus, an alchemist. Today's main applications of zinc can be found in the bulleted list below.

Corrosion-resistant zinc plating of iron (or hot-dip galvanizing): This is the main application of zinc.
The element can be found in batteries.
Also found in small non-structural casings.
Used as alloys such as brass.
Dietary supplements (zinc carbonate, zinc gluconate)
Deodorants (zinc chloride)
Anti-dandruff shampoos (zinc pyrithione)
Luminescent paints (zinc sulfide)

Right now around 70% of zinc production comes from mining while the other 30% is derived from the recycling of secondary zinc. If we think of zinc on a worldwide basis, we can hold as true that 95% of zinc is mined from sulfidic ore deposits. Although there are zinc mines throughout the entire world, China, in 2014, produced 38% of the zinc output (China is also the biggest consumer of zinc, talked about more later). I have provided a map of the production zones of zinc below.



We could go on and on about what zinc can be used for. But since most of you probably care about the investment opportunity that has established itself around the faltering supply of zinc, we will cut this section short. I have provided useful links here, here, and here for investors looking to learn more about the element zinc. To conclude this section of the article, I have provided a few facts about zinc that you probably did not know before.

There is a collection of armor from India that was made in the 1680s that was galvanized by dipping it in molten zinc.
Zinc is important in the health of a human body. A deficiency of zinc in a human can cause slower growth and put a damper on the immune system.
Pennies are 97.5% zinc and only 2.5% copper.
It has been speculated upon that zinc is the key that tells a cell when to split up (just speculation not total fact).
The memory region of the brain (the hippocampus) stores zinc.

What are the Worldwide Reserves of Zinc?

Source: Minerals.gov

As of right now, the largest mineable reserves of zinc are located in Australia, Asia and the United States. You can find zinc hanging around other metals such as copper and lead ores. In 2014, the identifiable zinc resources in the entire world was ~1.9 billion metric tons. The last recorded estimates state that around 346 million tons have been extracted from the earth (this number is from the year of 2002). These estimates go even further to say that the reserves could be completely depleted between 2027 and 2055.

Mine production for zinc on a worldwide basis in 2014 was virtually unchanged from 2013 (around 13.3 million tons). What makes zinc unique from an investment standpoint is the current deficit in production to consumption. In 2014, refined production rose 3% to 13.25 million tons, yet consumption rose by 5% to 13.65 million tons. Thus, the production to consumption deficit is ~400,000 tons. The increase in consumption in 2014 is said to be caused by an increase in US residential construction and infrastructure growth, the rise of net imports and a decline in year-end inventory stocks.

Based on the above facts, one would think that the price of zinc would be skyrocketing right now. If you take a look at the 2015 price chart though, you can see that the opposite is happening.

Source: Daily Zinc Prices

What is going on with the price of zinc? Has there been more reserves found? Or is production rising while demand is falling? These are important questions that must be answered in order to speculate or invest in zinc. But what is interesting is that there has not been any more reserves found and production is not expected to rise (at least on a worldwide basis). The main reasons why the price of zinc has fallen in the past few months is due to missed expectations and an increase in production from China.

As stated above, one of the main arguments for why the price of zinc has declined recently is due to higher production levels in China. Yes, production has been falling in Australia, Canada, India, Kazakhstan, Namibia, and Peru, but the declination in production was offset by the rise of production in China. I have a higher conviction though, that the decline in the price of zinc is due to missed expectations on a supply crunch.

Recently, the International Lead and Zinc Study Group (ILZSG) predicted that a zinc deficit of more than 366,000 tons would happen in 2015. In May, (the time the price of zinc started to fall), the deficit was halved to 151,000 tons. Not only did the ILZSG predict that there would be a shortage of zinc on the market but some Seeking Alpha commentators were also betting on a zinc shortage.

Source: Why I Bought Nevsun Resources

(click to enlarge)

Source: Why I Bought Nevsun Resources

But are missed expectations on supply the only reason why the price of zinc has been faltering this year? I would say no. Faltering demand can also be thrown into this complex equation. If you have been following the oil market lately, there are tons of negative expectations that China's demand for oil, going forward, will start decreasing. The same theory or expectations also can be applied to China's demand for zinc. Because of a slowdown in the manufacturing sector and tightening environmental regulations plaguing China, there are expectations that demand will slow down.

Let's think about the facts that we know though, and push these expectations away for a moment. First, we know that the demand for zinc is still higher than the supply. Even though it has missed most of the expectations, supply and demand are still in a disequilibrium. We also know that there have been a ton of mines that have closed or reduced output over the past several years. Thus, because of the former, we can theorize that new production to offset the already lost output, is not very probable.

An example of a closing zinc mine is MMG Limited's Century Mine, located in Australia. The century mine is currently the world's third largest zinc mine with an estimated production capacity of ~500,000 tons. Thus on a worldwide basis, this mine accounts for ~4% of the worldwide production of zinc. What is interesting is that despite this mine getting ready to close, MMG Limited has not had any luck finding a replacement.

Note: A similar example to the preceding one on MMG Limited is with Europe's Vedanta's (OTCPK:VDNRF) Lisheen mine. This mine is expected to close this month. The mine had an annual production of 175,000 tons. This was Europe's biggest zinc producing entity.

There are tons of other examples like the former two as well, all around the world. All in all, it is estimated by that by 2017, annual production will have ~1.2 million tons taken out of the worldwide supply.

The way I perceive the current zinc situation is that there was missed expectations that hindered the price in the short run. Although, pushing these mixed expectations aside, we can see the bullish elements playing out in favor for individuals long zinc. To wrap this section up, let's highlight some key facts that will coax well with the bullish thesis.

China's zinc consumption is expected to increase by 5% to 8.5 million tons up until the year 2020 (there is a bearish argument saying consumption will slow).
Annual production of zinc by 2017 will decrease by 1.2 million tons. The deficit will continue to expand.
Despite the fall in the price of zinc, there is still a deficit present in the market. As stated above, the deficit will continue to widen going forward.

Companies That Will Benefit From The Disequilibrium

Now that I have your attention about the investable opportunity with the shortage of zinc, let's dig into the best way to play the shortage. I have provided a graph of the five largest zinc mining companies below.

Source: Hard Asset Investor

The only company that is on an American exchange out of these five companies would be Teck Resources Limited (NYSE:TCK). If we take a quick look at TCK, we can see that it is clearly undervalued. The company has an EV/EBITDA of 6.11 and it is trading for 0.24x book. From the looks of it, TCK may be a solid investment to play the zinc market. Although, the way I would play the zinc market would be buying NSU.


As you can see from the above table, NSU is a very deep value play. I mean, when do you ever find a company trading with an EV/EBITDA of 0.68x? Going further, we can determine that NSU is undervalued on a balance sheet analysis, and will have great growth prospects due to its successful exploration upside.

Source: Company Presentation

From looking at the above picture, NSU's zinc production will start ramping up in 2017 (the year zinc is supposed to have a windfall). Thus, when the market begins to realize the deficit in zinc is widening, NSU will see its margins expand (due to higher zinc prices). The company is also a low-risk play since it has zero debt on its balance sheet and cash equals ~70% of its balance sheet. With such a high cash position, we can determine that the current 5% dividend is also sustainable (this lets investors collect income while holding the company).

NSU is also trading near a 52-week low. The company does have its mine out in Eritrea, which gives it some geopolitical risks, but I believe the severe undervaluation offsets any geopolitical risks. Overall, I believe that NSU is one of the most undervalued, overlooked, deep value plays currently available. The zinc deficit makes an investment in NSU even more compelling.

This article is not meant to be an investment thesis on NSU, so I will leave the rest of the due diligence to the reader now interested in NSU. The article is meant to make investors aware of the current zinc deficit, which I believe it has done. If you think that NSU is an interesting investment now, I urge you to reach out to me and we can discuss it together. If you want to learn more about NSU, you should read these research reports here, here and here.
In Conclusion…

What happens if I am wrong and the production of zinc equals consumption in the next year or so? I find this to be very unlikely. First, there are going to be a ton of mines closing down within the next year or two (one that is 4% of production). Even if TCK, for an example, found a big zinc mine within the year, it takes a ton of time to develop the mine. Thus production will be stalled out for a few years until the mine is fully developed. Secondly, I do not believe that consumption of zinc will falter going forward. Because of my expectations that consumption will increase while production falls, there will be a double whammy to the already current zinc deficit. However, I would like to hear the argument that the deficit will not expand but contract going forward (please leave your arguments in the comment section of this article).

Overall, I am expecting zinc prices to rise in the forthcoming future. To take advantage of rising zinc prices, investors can purchase stock in a company that has a high reserve of zinc in its mines. NSU is a company that I will advocate that deserves a buy. You can buy the company at a very steep discount to book and get the growth story for free. I will continue to watch the zinc market going forward and provide updates for my readers. To end this article, I would like to ask the reader; what your favorite zinc plays are?

Happy Investing and Good Luck!

[fireball xl5] 07/10/2015 11:49

Best volume we have seen in a while. Back on the radar? The positive news flow and concise RNS's are seemingly having an impact and some of the old bull we were saddled with is now fertilising our share price growth.

[fireball xl5] 07/10/2015 11:29

Rare Zinc, I know there are some unusual elements down there but rare QS?

[qsmeily456] 06/10/2015 18:23

Balls as ever the honest gent, my cap is off my knee bent sir.

Let us see what unfolds and the market for rare Zinc.

As I said 10p is where these should be even 30% puts them at 7p time for a 99 LOLsss

[fireball xl5] 06/10/2015 17:41

J99 - The January transfer window will see a flurry of activity. Metals will recover and the team will climb a division.

[99jeremiah] 06/10/2015 14:51

It's a pity the metals prices are off 30% and peeing on AB's debut season as manager, otherwise I think we'd be above 10p already.

[fireball xl5] 06/10/2015 13:01

Yes QS you were correct. The Tecteon days and some of the goings on should have been a red flag but when he brought us back from the brink I assumed his endeavors were that of a man with some honour. He did assemble Kabwe, that was a task. The copper exploits, well they were a little fanciful. The last year of his reign was rudderless but on the cusp of success. I was misguided and you hit the nail on the head several times. I was also of the belief that the markets were governed and that auditors, nomads and the powers at be would protect stakeholders, that was incredibly misguided.

The team now have had a year and it appears that they are at last taking the company forward. The heavy write downs were always on the cards, with a new incumbent and heavy they were. They have given themselves the ability for a tremendous amount of upside at that price. Success, without dilution, will however allow pre suspension holders to enjoy a less taxing ride and some of the value creation.

[qsmeily456] 06/10/2015 09:44

These shares were 10p when the BOD wrote down the assets and filled their boots with cheap options they can access at 6p so expect somewhere well north of that to come LOLsss

[qsmeily456] 06/10/2015 07:53

Balls

You defended the old man to the hilt. I said from day 1 MA couldn't run a company and they needed a decent CEO.

The jury is still out BUT credit where it's due.

Is it so hard to do the right thing you ask?

Well for 10 plus years it was and you protected that regime LOLsss

[fireball xl5] 05/10/2015 21:01

Let's hope some of the die hard wrecked souls surface from the Tecteon and Berkeley yards that bear no crosses for the fallen. It's been a bitter sweet symphony of orchestrated deception, will the incumbent conductor end it with a fitting crescendo?

[fireball xl5] 05/10/2015 20:43

Refreshing isn't it QS, is it so difficult to do the right thing? Certainly has the bull by the horns lol.

ML - the passing was broadcast on a Ukranian web site during the match and pounced upon by others and so followed the departure soon after the whistle. Klipperty Klop was heard in the Kop. What next we wonder. BMR is at least less of an enigma and may prove to be a crown in the Jewel.

[qsmeily456] 05/10/2015 13:58

To be fair to him he's doing it right......a run of news backed by PR and hopefully followed by in discussions with the .....over investment into KABWE.

I'm a bit full of pie and eggs LOLsss

Won't knock him as there's nothing to complain about. Well done Alex.

[mlangton1] 05/10/2015 12:25

Must be 10 years since I first laid eyes on TEO and it finally feel like we might be getting somewhere. New manager for LFC too FB. Seems my selections in sharedealing are almost as bad as in footy.

[fireball xl5] 05/10/2015 08:57

Nice bonus. Money in instead of money out to extract the harmful elements. Keep it coming.

[upsondowns] 05/10/2015 08:02

You starting your second slice yet?

[qsmeily456] 03/10/2015 13:43

Good on Alex, impressive he seems to be doing a first rate job credit where it's due I'm tucking in to the first slice of pie.....LOLsss

[qsmeily456] 03/10/2015 13:39

Is that the 300 million one you predicted before MA got caught with his hands in the till you complete fool Livatinybit LOLsss

[liveit2] 02/10/2015 08:16

SS - thanks

let our metamorphosis begin

[selfservice] 01/10/2015 15:15

New interview with Alex Borrelli on MiningMaven

[qsmeily456] 01/10/2015 14:51

Nice drop LOLsss

[99jeremiah] 29/9/2015 13:00

We may yet see MA's £1! Of course Glencore will have to go bust spooking all other commodities and crashing markets and pension funds forcing the FED to print umpteen trillions meaning £1 will buy you, er, nowt. :-(

[qsmeily456] 28/9/2015 18:05

Shame the majority of you voted for 10 to 1 consolidation so now just to get back to 1p is 10p and a big rise from here and just 3p is 30p or over 700% rise LOLsss