rederob said:
Captain
You could always read the company announcements to find out.
Just an idea!
hehe yeah
If cash is king, Zinifex wears the crown
Author: Trevor Hoey
Date: 21/06/2006
Words: 663
Source: AFR
Publication: The Financial Review
Section: Portfolio
Page: 35
Mining stocks have been well and truly dethroned in recent weeks but, if cash is king, it is hard to ignore Zinifex, especially for investors looking for buying opportunities after the recent sell-off.
In May, UBS released a research report on Zinifex, titled Awash with Cash. The broker upgraded its earnings forecasts for 2006, 2007 and 2008 by 63 per cent, 95 per cent and 96 per cent respectively. UBS has a price target of $14.50 on Zinifex and the broker's earnings and dividend estimates suggest this is conservative if anything.
Based on UBS's earnings per share estimates for 2005-06 and 2006-07, Zinifex is trading on price-earnings ratios of 5 and 1.8 respectively, for a share price of $10. UBS estimates Zinifex could pay fully franked dividends of $1 and $3 in those years, representing yields of 10 per cent and 30 per cent.
Zinc is UBS's commodity of choice in the present environment and, based on supply and demand, it is easy to understand the broker's bullish stance.
In the past 12 months, zinc warehouse stocks, according to the London Metals Exchange, fell from 640,000 tonnes to 230,000 tonnes. UBS believes there is little scope for a material increase in the supply of zinc to global markets in the near future. A significant decrease in demand is required to undermine the strong fundamentals that should support the zinc price once the volatility caused by commodity funds and speculative investors wanes.
Recent data indicates that the zinc price has been buffeted by speculative traders rather than the fundamentals that tell the real story. Even during the 30-day period in May-June, when the zinc price fell about 25 per cent, London Metals Exchange warehouse stocks fell from 252,000 tonnes to 230,000 tonnes.
The wild card is the US economy and the potential impact of a downturn; there is no doubt that demand for commodities would be affected. But determining the effect's extent is difficult, especially in light of the increased demand related to domestic consumption in emerging economies such as China and India. If we use UBS's preboom zinc price as a guide, Zinifex's cash flow, valuation and yield still appear impressive. Using a zinc price 25 per cent below the commodity's recent low, Zinifex's P/E ratios for 2005-06 and 2006-07 are 7 and 5, relative to a share price of $10; the respective yields would be 5 per cent and 9.3 per cent.
While Zinifex presents as an attractive yield investment, it has scope to improve its already impressive growth prospects. Some of its cash could be directed at acquisitions, particularly if the share prices of smaller players fall substantially. Zinifex has existing alliances with junior base-metals producers and explorers, including CBH Resources, Terramin Australia and Haddington Resources. In March 2006, Zinifex reached an agreement in principle with Smartrans to enter a joint venture in relation to the company's nine base-metal tenements in the vicinity of Zinifex's Century mine in Queensland, but this is yet to be formalised.
Zinifex's joint venture with Terramin is arguably the one most consistent with the company's existing operations. The joint venture grants Zinifex a 70 per cent interest in Terramin's Menninnie zinc, lead and silver project, where recent exploration has confirmed that a large Broken Hill-style mineralisation with high-grade zinc intersections exists on South Australia's Eyre Peninsula.
Apart from increasing its traditional zinc and lead business, part of Zinifex's strategy is to penetrate selected niche minerals markets, where it can become a dominant player with the same type of competitive advantages it has with its zinc business. Consistent with this goal is Zinifex's heads of agreement alliance with tantalite producer Haddington Resources.
Though Zinifex's share price could be driven by expanding its zinc and lead business, broadening its exposure to other minerals could provide more stability as the company's share price tends to react sharply to movements in the zinc price.