Zinc prices reached a 5 year high in February. Just as analysts forecasted, the zinc concentrate market is unravelling. Don’t be surprised to see further smelter cutbacks this year.
After a terrific run, zinc equities have pulled back slightly as investors take profits creating a buying opportunity.
Smart resource investors are already placing bets ahead of this pinch point but stocks with exposure to a rise in zinc prices are limited.
Commodity giants Glencore and Teck (5 bagger in last year) rank in the top 10 zinc producers worldwide.
Earlier this month Glencore tightened their grip further down the food chain by taking a 25% stake in the only zinc focused producer on the TSX, Trevali Mining. In exchange Trevali will take control of two zinc mines in Africa and move one step closer to becoming a mid-tier zinc producer. Trevali is a 4 bagger in the last year.
Next on investors radar are zinc development stocks (companies with a resource).
Development companies offer fantastic risk/reward in bull markets as they benefit from the commodity price move, and news catalysts as they move their projects forward, and offer takeover potential.
As the zinc bull market continues, investors will be looking for companies with large proven deposits (increased leverage) in good political jurisdictions.
| Company | Project | Resource (zinc lbs) | EV (per lb) | Location |
| Darnley Bay | Pine Point | 5.8 billion | $0.006669 | Northwest Territories |
| Canada Zinc Metals | Akie | 5.7 billion | $0.008302 | British Columbia |
| Zazu | Lik South | 4.2 billion (*50% interest) | $0.007867 | Alaska
|
| Canadian Zinc | Prairie Creek | 3.5 billion | $0.041298 | Northwest Territories |
| InZinc | West Desert | 2.4 billion | $0.007360 | Western Utah |
| Tinka | Ayawilca | 2.4 billion | $0.042131 | Peru |
*Resources all published reserve/resource categories
*Pine Point resource is historical and not 43-101 compliant
Key metrics to look out for are current cash position and upcoming catalysts. Joseph Gallucci, Managing Director Investment Banking at Eight Capital “A majority of zinc development plays will not be in production to catch the cycle, either due to permitting or funding obstacles (or both).”
| Company | Cash | Project stage |
| Darnley Bay | ~$10,000,000 | PEA in progress |
| Tinka Resources | ~$10,000,000 | Resource drilling |
| Canadian Zinc | ~$9,800,000 | PFS complete |
| Canada Zinc Metals | ~$7,000,000 | Resource drilling |
| InZinc | <$500,000 | PEA complete |
| Zazu | <$100,000 | PFS done |
Cash position is critical to fund additional work that may create shareholder value before the dilution of another financing.
Tinka Resources (TK.V) – Tinka has been a popular zinc stock after an excellent step out drill hole last month from a 10,000 metre drill program that commenced in February. At the Ayawilca project in Peru the company is targeting resource growth in 2017 from the drill bit. A new resource estimate is expected later in the year.
InZinc Mining (IZN.V) – InZinc’s share price is up close to 50% to start the year, on leverage to the zinc price and a new model about the West Desert Project. InZinc will need to complete a financing and then start drill testing this new thesis.
Canada Zinc Metals (CZX.V) – Canada Zinc Metals plans to take full advantage of a potential move in the zinc price this year. The busiest work season in a couple years is planned with 7500 metres of drilling at Akie starting in June as well as the possibility of a PEA in Q4.
Darnley Bay Resources (DBL.V) – Darnley Bay is the newcomer to the zinc development group but may be the first to production after acquiring the past producing Pine Point Project. The most profitable zinc-lead mine in Canadian history producing 64 million tonnes of 7% zinc and 3.1% lead from 52 deposits. Past production is an advantage with proven mining methods to rely on, also easier when it comes to permitting Pine Point and staying on the fast track to re-start production by 2019. A major catalyst will be the Preliminary Economic Assessment (PEA) expected in a few weeks.
Zinc development stocks look ready to go in 2017 and this pullback presents a fantastic buying opportunity in what is likely to be a hot sector moving forward.
–Posted on behalf of James Fraser
About the Author:
James Fraser is a mining analyst at Miningstocksguide.com and is passionate about the mining sector and mining stocks. His passion led to co-authoring the book “Mining Stocks Investor Guide: A Guide to Investing in Mining Companies.” He has a finance background and has completed his Canadian Securities Course (and Conduct and Practices Handbook. When Fraser is not “digging” up the latest mining stock, he can be found enjoying a wide variety of sports or traveling the world.
FULL DISCLOSURE: None of the companies mentioned in this article are clients of EQUITY.GURU