Knew PEM would go up. Hit up to 29 cents today and settled back to finish up at 27.5 cents. Up 8 cents on the day. Not bragging just relieved and happy to go square. What will happen tomorrow? Dow futures look good for tonight.
Seems China is either stockpiling Zinc at cheap prices or their consumption is growing. Lots of good news out of China in general.
Holding 77,000 shares and am up by $850
Tempted to bail out but going to sleep on it. Anyone care to comment on where this stock is or sector is going?
Hi Oremo,
This Perilya and Kagara action has spurred me to start thinking about zinc again, which I did when making a quid out of Zfx as zinc got to $2/lb.
I wouldn't pretend to advise you, being just a mug punter, but will presume to volunteer the little I learnt from that period anyway.
Perhaps you already know, although I didn’t to begin with, the very basic thing is that there is a base metal cycle - demand rises above supply, the prices goes up sharply, speculators increase the effect, but the price is absolutely pole-axed eventually by the overpowering massive over-supply response. Zinc is a common metal and a good price gets miners cranking it out. The price movement is aided and abetted by mysterious speculators. ("Nuclear winter in base metals" by Frank Veneroso was an interesting read in that respect)
So, the price of the metal is the driver of the SP of producers, bearing in mind debt level, the amount of resource they have and the price of their production per lb – which reflects its accessibility, ratio, contaminants, etc., etc. and of course the lead you get when mining zinc.
So, provided you are happy with the recovery cost, the management, the resource, it is all about the price of zinc (and lead). This is primarily where you have to concentrate your research.
Simple things like having a Google on "zinc demand supply" and so on will give you a start on what sorts of articles and opinions / statistics / forecasts are around. Kitco has some good historical charts of prices and LME holdings of the metal. Of course, there are non-LME stockpiles as well and stockpiling and de-stocking by the various producers and users alike (and sometimes, it is rumoured, by price manipulators). There are all sorts of commentaries about supply/demand and futures trades and so on. A poster called “Brend” seemed to be the ducks nuts on commodities and zinc on Aussie stock Forums
From a very quick squiz at their website, (you’d need to check what I am saying is correct - have a gander at their website) Perilya says it has no debt, and currently claims to produce at around 60 - 65c per lb, having recently reduced costs (and production).
Despite the lack of debt, it appears they would have collapsed without a capital injection provided by the Chinese getting 50.1% for $45m. You can’t keep producing something that sells for less than it costs you to produce for any length of time.
This Chinese intervention is predominately a comforting one (to me). For one thing, it indicates the resource is very satisfactory. Resource security is clearly important to China. It seems reasonable to expect China is pleased to have snapped up these resources cheaply and so the short-term price is probably not their primary concern. They are not likely to relinquish them just because they lose money for a period. Although, the other side of that coin is that they may not feel compelled to mine it at a loss - happy enough to know it is there – and theirs.
So, as always, whether the price keeps going up seems to be the question that will bear on whether Perilya SP does too, but since the Chinese have come on board, this may allow some leeway in how critical the immediate zinc price is.
You would think China is not taking these cheap companies with good resources to just let them fold due to short-term market price problems – after all, that is exactly how they came to acquire them in the first place, isn’t it? China wants resource security, it doesn’t care about losing a quid for a year or however long they think is tolerable – quite a long time I suspect. The profit imperative is not so demanding when your access to capital is not really constrained.
As a cycle, zinc will go back up again at some stage – and the money made during the boom times is considerable. If you had China’s resources, you wouldn’t be too upset by a delay in realisation of an investment. Let’s say the price of zinc gets above a dollar again in 2012 or 2013?
On the other hand, there are some commentators who say the zinc price will remain flat for a couple of years. Even if this proves correct, it will not be falling after that.
If I understand it correctly, when the massive over-supply response shocks the base metal price, it reverts pretty much to cost of production. However, in this case, rather than massive over-supply causing it in the usual way a base metal price rout occurs, it has been due to the sudden erosion of demand caused by the general financial crash that has affected demand and perhaps more accurately, “perceived demand”, and not over-supply itself – except relatively speaking. I’m not sure the distinction drawn there necessarily holds much water, of course demand / supply is relative, or whether it can be extended to a meaningful consequence, but it is a working hypothesis for me for the time-being.
Accepting that proposition, then stimulus and any sort of recovery could have a sharp effect on base-metal price, because the usual true cause of base-metal flat-line is massive over-supply response which overshoots demand by a long way because of how long it takes to bring production on-line, not merely temporary demand erosion, which at least has the potential to be more quickly restored.
Prior to doing any sort of real contemporaneous reading or research, my initial feeling is that the base-metal prices will continue to improve simply because of the absence of massive over-supply. Demand erosion skewing the demand supply equation is not of the same long-term magnitude as the classic massive over-supply response which cruels the price for an extended period.
Perilya looks to be a good company with no debt, who made sensible rationalising moves when the zinc price crumbled, has improved production costs which are around the current price of zinc and better financial depth and therefore the luxury of more time because of its new major stockholder.
I wouldn’t presume to give advice to you about your holding, but there should be some comfort in the fact the independent advisor gave a valuation around 30-33 cents when the Chinese took their stake, although I don’t know what price they assumed in their valuation. The fact the price of zinc is around 65cents tonight on Kitco is not bad either.
Given the previous Perilya SP there must be many, many unhappy holders who wished a price of 29 cents put them in the black and I would be feeling more excited than anxious being in that position. The Chinese backing and the cash itself both provide some longer term security, but of course, depends on what else you hold, risk appetite, etc.
I might have a bit of a nibble myself after a bit more of a sniff around. I always feel stupid talking actual prices because I am seldom right, but after a 41% increase, a retrace of a couple of cents would not be unheard of.
On the other hand, if their longer-term survival looks more certain now, then significant increases could well be sustainable. The aftermath of this crash sees the Chinese snapping up resources at bargain prices and people making real money in the market.
A modest base metals rally doesn’t depend on the world booming again - it just has to be going along wanting more zinc than is available. There will presumably be some production curtailed (as by Perilya) and some imbalance in re-starts versus immediate demands.
As far as the condition of the world economies, I slightly discount the bears’ current profile in forums and the media because this prominence flows from a natural bias towards the flavour of events which have already occurred – which is not to say everything is rosy, but there is a lot of things that still need to be going on and a lot of money wanting a profit and an awful lot of people with aspirations which generally manifest at some level as “wanting stuff”. The various stimulus packages have a big infrastructure component, good for copper and zinc.
Sorry to have gone on so long, but it has got me thinking zinc again in my amateur way and the straightforward equation once you make the complicated decision of whether and who (and when) to invest in with a zinc producer has its own appeal:
Open Kitco -check zinc & lead price - hooray, or boo hiss.
Cheers,