TZN - Terramin Australia

YOUNG_TRADER said:

I made a killing on TZN from 70c to $1.70 - $1.90 (can't remember)

Anyway I researched this one well back then and played it well, so I'll offer this caution,

IMO TZN will drop back to the 70c level, the catalyst for this will be a huge cost blow out at its S.A. Zinc mine, I'm saying this because everyone has been suffering huge cost blowouts, no one has been spared,

So just like I was saying back then that the feasibility study will catch the mkt off guard and rocket the price up, I'm now warning that the cost blowout (if there is one) will also catch the mkt off guard and cause a drop,

Just my opinion though


I hope I'm wrong,

Good luck to all

Click to expand...

Fab said:

TZN is a zinc company , isn't it ? So wht ZFX moved up 25% and TZN did not move that much in the last month ?

Click to expand...

Fab said:

Thanks Nizar ? What are they then ? Do you know their potential

Click to expand...

champ2003 said:

They are not starting production next month. April 2007 is the target for start up.

Click to expand...

Fab said:

Looks like the market is giving some good attention to TZN today it has reached $2. I was wondering why all other Zinc stock where flying but not TZN

Click to expand...

Terramin Australia (TZN.ASX) is an Adelaidebased
company that is advancing a portfolio of
zinc projects in Australia and Algeria, with a view
to becoming a 200kt producer from the end of
the decade.
The Angas project, near Adelaide, is expected to
provide the early cashflow, with average production
of 30,000tpa of zinc and 10,000tpa of lead from late
2007. However, the jewel in the crown is Oued
Amizour, a well-advanced zinc project in Algeria,
strategically located close to several major European
smelters. With a forecast 2010 start-up date, the
project could be producing up to 185,000tpa of zinc
and 48,000tpa of lead.
· Our base case valuation for TZN is $1.64/share,
assuming a long-term zinc price of US$0.65/lb
and applying a risked 25% of the potential Oued
Amizour value. However, the leverage is
substantial and even at price assumptions half
that of the current spot levels, we would value
TZN at $4.20/share. In addition, as Oued
Amizour is advanced, we would expect to see
value upside beyond this.
· When compared on a number of measures
against the current zinc producers, TZN appears
to be inexpensive, trading at multiples less than
half that of its (admittedly larger) peer group.
· Backed by a highly-experienced board and
management team, we expect to see the
company re-rated as it comes into production.
We initiate coverage with a Speculative Buy
recommendation. Our risked target price of
$2.45/share is based on NPV upside and
comparative earnings multiples.
OVERVIEW
Terramin Australia (TZN) is an Adelaide-based company that is advancing a portfolio of
base metal projects, with a view to becoming an attractively-sized (~200ktpa) zinc
producer by the end of the decade.
The Angas project, near Adelaide, is expected to be the first step in this direction,
producing zinc and lead-copper concentrates from late 2007. At peak production the
project is expected to produce 35,000tpa of zinc and 11,000tpa of lead.
The Menninie project, a JV with Zinifex (ZFX), is located approximately 400km NW of
Adelaide. Economic mineralisation has been drill-defined along a 6km strike length
indicating potential for a substantial ore body. It is currently being fast-tracked to resource
status. ZFX (currently 49% partner) will be spending up to $8m to move to a 70%
position.
The jewel in TZN’s crown is Oued Amizour, a well-advanced zinc project in Algeria,
strategically located close to several major European smelters. With a 2010 start-up date
targeted, the project could produce up to 185,000tpa of zinc and 48,000tpa of lead.
Portfolio of
projects
The overall attraction of TZN is this portfolio of development projects, with strong
leverage to base metals prices (and potential deep value) and a highly experienced
management team.
ANGAS (100% TZN)
The Angas zinc project is located 2km outside of Strathalbyn, approximately 60 km SE of
Adelaide. TZN has been advancing the project since it acquired the leases in 1997. Prior
to this it had been held by Aberfoyle Resources since its discovery in 1991.
Infrastructure is good, with mains power and water available at site and port facilities
70km away along a route rated for B-double trucks.
LOM off-take with
Sempra
TZN has secured a life-of-mine (LOM) off-take agreement with Sempra Metals, with
treatment charges re-negotiated annually on the basis of commercial market rates.
Debt financing for the project is currently being arranged with no additional equity
requirement expected. Financing should be completed before the year end and TZN will
likely be required to forward hedge some of its production.
The mill (ex- The Granites) is already on site, as well as some of the mining fleet for the
box-cut and portal. A Mining Lease has been granted and the Mining and Rehabilitation
Plan (MARP) is awaiting approval. Assuming that TZN receives MARP approval by year
end and that the 44-week construction plan is met, then Angas should be in production
from the Dec’Q 2007.
Given the proximity to nearby Strathalbyn, there has been intense community
engagement and a high-level of engineering behind the mine proposal.
The base-case key assumptions behind our Angas model are as follows:
· LOM processing of 2.4mt of ore at an average 8.1% Zn, 3.0% Pb and 0.3% Cu. Six
to seven year underground mine life.
· Dual zinc and lead-copper concentrate production. LOM production of 185kt of zinc
and 60kt of lead.
· Operating costs including transport of A$84/t. Cash costs, including smelter costs
and net of by-product credits, of ~US$0.32/lb Zn.
· Pre-production capex of $65m, including initial working capital; LOM capital of $76m.
Under these assumptions, together with our commodity price and FX assumptions, we
value Angas at $109.9m ($1.21/share), using a nominal 8% real discount rate.
MENNINNIE (51% TZN, 49% ZFX (ZFX EARNING 70%))
The Menninnie JV project is located approximately 400km from Adelaide and is 160km
west of the lead smelter at Port Pirie. The project, encompassing the largest known leadzinc
occurrence in South Australia, is currently being fast-tracked to resource status.
While historical drilling has identified mineralisation extending over a 6km strike length,
with 3.5km of ore grade intersections, current drilling is focused on identifying and
defining discrete ore bodies for resource reporting.
Drill results to date have been encouraging, with DH56 returning the best intercept thus
far – 56m @ 5.8% Zn and 4.6% Pb.
Under the terms of the JV, Zinifex (ZFX) is required to spend up to $8m by the end of
2010 to move to a 70% position. Based on the terms of the JV, we value Menninnie Dam
at a nominal $3.5m of 4cps, pending the resource outcome and scoping studies. The
$5m ZFX has spent to date has taken it to 49% ownership.
OUED AMIZOUR (65% TZN)
The Oued Amizour project (Tal Hamza orebody) is located in Algeria, 10km south of the
port of Bejaia, one of the main harbours on the Mediterranean Sea and the pipeline
terminal for the Saharan oil and gas fields. Infrastructure is good with nearby road and
rail services, electrical power and an international airport. [See brief overview of Algeria
at the end of this report].
Following mapping of the region in the 1970’s, and more advanced exploration work in
the 1980’s, the base metal mineralisation was discovered in 1989. During the 1990’s, the
main Tala Hamza orebody was drill defined and assessed (hydrogeology, metallurgy)
with an initial, non-JORC, resource of 30mt at 6.9% Pb+Zn identified, including 11mt at
10.9% Zn and 3% Pb. However, the government was unable to attract foreign
investment, initially due to the civil unrest and then due to the restrictive mining codes of
the time.
New mining laws passed in 2001 allowed foreign participation of up to 100% and the
project was again put up for bid from late 2004. Juniors were apparently given
precedence, since the government did not want the project mothballed by a major. TZN
was the winning bidder amongst an international contingent of suitors.
TZN’s 65% holding is through an Algerian holding company established in early 2006,
Western Mediterranean Zinc (WMZ), in JV with two Algerian government departments.
The JV requires TZN to expend up to US$6.6m to reach a decision to mine; then
managing the subsequent financing and operation of the project.
The manner in which the government then participates going ahead remains open to
conjecture. While TZN has first right of refusal on the government’s 35% share, should it
lack the funding or the desire to retain this position, the government could also be free
carried and diluted down to a lower holding.

Click to expand...