Correction: I mean nickel.
Correction: I mean nickel.
Toothfairy good things come to those who wait. The only dilemma I am faced with is the chance of a market correction before the zinc bull has its run, so very hard to judge whether to fully jump on board now or wait and see how the market pans out over the next month or so, which if doesn’t play out, could be to late. Still that hasn’t stopped me building a stake in one of these companies over the past few weeks. DJ heres some interesting figures to have a glance at. There are some winners out of these even if zinc remains at current levels. (These were calculated intraday yesterday)
KZL:
•12% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=13, PEG=0.13.
•2 year earnings forecast Aspect Huntley = 96.5%
CBH:
•33% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=10, PEG=0.08
•2 year earnings forecast Aspect Huntley = 129%
ZFX:
•6% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=6.5, PEG=1.96
•2 year earnings forecast Aspect Huntley = 5%
PEM:
•22% from its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=9.5, PEG=0.18
•2 year earnings forecast Aspect Huntley = 51.6%
Red, thanks again for sharing your knowledge, in helping me gain greater understanding of the base metals market it is much appreciated. Just another few quick Q’s.
1.I understand that cancelled warrents respresent a pledge to take deleivery and hence reduce the amount of metal available to the market, but how does this entire process work? For example if there are 10,000t’s of cancelled warrants does this imply that 10,000t’s will be withdrawn from LME wharehouses over time because instituions or companies pledging to take deleivery some date in the future?
2.In regards to valuing a company based on it actual metal. I just want to be clear. For example CBH;s endevour mine Produces approx 1.2Mt of ore p.a. to produce around 160,00t of zinc concentrate containing 80,000t’s of Zn, does this imply that I am basing my production forecasts (to put into a valuation) based on the 80,000t’s i.e. conatined zinc?
In regards to the laging postive correlation with nickel, I Think your target for the price of Zn which you posted a while back, could be a fairly close estimate (i.e. as long as inventories continue to decline).
KZL:
•12% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=13, PEG=0.13.
•2 year earnings forecast Aspect Huntley = 96.5%
CBH:
•33% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=10, PEG=0.08
•2 year earnings forecast Aspect Huntley = 129%
ZFX:
•6% off its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=6.5, PEG=1.96
•2 year earnings forecast Aspect Huntley = 5%
PEM:
•22% from its 52 week high (late 06 when zinc prices were above $2/lb)
•PE=9.5, PEG=0.18
•2 year earnings forecast Aspect Huntley = 51.6%
Red, thanks again for sharing your knowledge, in helping me gain greater understanding of the base metals market it is much appreciated. Just another few quick Q’s.
1.I understand that cancelled warrents respresent a pledge to take deleivery and hence reduce the amount of metal available to the market, but how does this entire process work? For example if there are 10,000t’s of cancelled warrants does this imply that 10,000t’s will be withdrawn from LME wharehouses over time because instituions or companies pledging to take deleivery some date in the future?
2.In regards to valuing a company based on it actual metal. I just want to be clear. For example CBH;s endevour mine Produces approx 1.2Mt of ore p.a. to produce around 160,00t of zinc concentrate containing 80,000t’s of Zn, does this imply that I am basing my production forecasts (to put into a valuation) based on the 80,000t’s i.e. conatined zinc?
In regards to the laging postive correlation with nickel, I Think your target for the price of Zn which you posted a while back, could be a fairly close estimate (i.e. as long as inventories continue to decline).
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Yes. It's that simple!
Yes, only account for actual metal.
However, strip ratios and/or metal percentages in ore can make a huge difference to profitability. For example, high grades mined underground could be more profitable than ten times the ore volume mined in open cut at low grades: So the sums can get blurred.
With regard to my zinc price target, as far as I am concerned, the only issue is when inventories start to climb again at a pace that is likely to be sustained.
For the time being zinc inventories are trending beautifully and we should see the 50k inventory level achieved some time in July.
A strange thing can occur when the psychology kicks in: Consumers, fearing further tightness, buy more than they need short term. This spikes the price considerably and traders can do well during this madness.
My personal suspicion is that a $4k benchmark price will lock in for the longer term, and like nickel we will see prices remain strong and the market remain very tight.
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Lets hope you are right Rederob....I was a bit concerned to read earlier this week about "surging" Zn supply from Peru. Thought this may be a factor in Zn price not reflecting the continued decline in LME stocks. ie, wariness. However so far this has not found its way to LME warehouses.
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Further to above comments...
CORRECTED - (OFFICIAL)-Peru April exports rise 10.5 pct as zinc sales surge
Thu May 24, 2007 4:42PM EDT
LIMA, May 24 (Reuters) - Peruvian exports rose 10.5 percent in April from a year earlier to $2.003 billion, thanks mainly to strong export sales of minerals, particularly of zinc, a state-run agency said on Thursday.
Mining exports jumped 11.2 percent in April to $1.325 billion -- or 66 percent of total earnings, Promperu, an agency that promotes exports, said.
Zinc exports more than doubled to $283 million, while copper sales abroad rose 16.7 percent to $554 million.
In contrast, gold exports fell 18.1 percent to $270 million compared with the same month a year earlier.
Mining is one of the economy's main drivers and regularly accounts for more than half of Peru's export earnings. The South American country is the world's No. 3 copper and zinc producer, a top-two silver producer and No. 5 in gold.
Peruvian exports in the first four months of the year rose to $7.54 billion, up 17 percent from the same period in 2006, said Promperu, formerly known as Prompex.
The United States accounted for 18.7 percent of Peruvian exports, followed by China, 13.5 percent; Switzerland, 9.2 percent, and Japan, 6.9 percent.
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Rederob,
Slightly concerned of the build up in Zinc stocks in China. In the last month these stocks have risen from 30518Mt to 44476Mt today. If the LME zinc price does start to rise and get near $4k, we could well see China resume exporting zinc back into the international market, thus keeping a ceiling on prices and even pushing back to levels where we are at now, even though stocks maybe 50K or lower.
Cheers
Muzz
michael_selway
Coal & Phosphate, thats it!
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We deal with a very huge zinc supplier in China, they have been delivering zinc into Shanghai warehouse. If LME zinc price is high, they may do the same. The real demand for base metal is very bad, what is written on the media are mostly untrue. The prices are mostly driven up by hedge funds.
As for the copper, one hedge fund and a metal company had teamed up to draw copper inventory from LME and delivery into Shanghai warehouse; to create a false impression that LME Copper is in high demand. Possibly this is happening to zinc now.
Is Zinc forming a huge head and shoulders reversal pattern? Hard to tell so far, but it does look a little like one at the moment. If it breaks the neckline at 2900 (3 month cash rate), then geez, we might be headed for lower levels. Needs to break into new highs for all bets to be off. Also note the outperformance of (ZFX) compared to the price of Zinc. Can this last, or is this a sign of the markets willingness to buy into Zinifex, despite underlying weakness in the Zinc price?
michael_selway
Coal & Phosphate, thats it!
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if thsi is true price of zinc wont be going up unless Shanghai warehouse stocks go down as well?
thx
MS
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These plays have been going on for years.
There are dozens of merchants, funds, producers, etc., so unless you are looking at the bigger picture you will only see what is transparent to you.
The fact remains that inventory drawdowns are widespread, so thinking only of what China's role is in the equation is just not good enough.
The US has been the mainstay of zinc's strength, and that position has reduced, but is still not overtaken.
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Large rise of Zn inventories into LME today + 2800t combined with yesterday rise of + 850 has broken the consistent draw downs. Also noticed cancelled warrants have also fallen to around the 8000t mark. What are your thoughts Rob? Not to worried…but nevertheless it’s not good to see this downtrend broken last this occurred we saw a large inflow of the metal into LME warehouses. Lets hope its not the start of more to come.
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Article below suggests Xstrata remains very bullish Zinc-wise over next decade.
Zinc
Researcher sees strong demand for years to come
By Tom Stundza
Purchasing
June 14, 2007
Continued growth by the industrializing nations and the so-called “extreme economies” over the next decade should maintain demand strength for zinc. Zinc consumption could grow by between 5.6 million metric tons and 7.9 million tons, forecasts Emilio Tamargo, general manager of business development and research at Xstrata Zinc in Asturiana, Spain.
The industrializing nations tend to be Brazil, Russia, India and China, the so-called “BRIC nations,” while what investment bankers have labeled the “extreme economies” include nations such as Turkey, Poland, Romania, Egypt, Vietnam and Columbia. Tamargo tells Metal Bulletin’s 11th annual zinc conference in Madrid that the potential for substantial growth in consumption by these and the industrialized economies countries “is expected to remain sustainable for many years to come.”
Besides being a key coating for steel in the production of galvanized sheets and other forms, zinc is the alloying metal for copper used to make bronze and brass, and a die-casting metal. Zinc’s compounds also are used by the rubber, chemical, paint, agricultural and pharmaceutical industries.
Tamargo believes that zinc inventories will remain low over the next few years, according to a report in the subscription-only newsletter Nymex Direct, because of years of underinvestment in exploration and development of new mine supplies that only recently has been addressed.
Zinc
Researcher sees strong demand for years to come
By Tom Stundza
Purchasing
June 14, 2007
Continued growth by the industrializing nations and the so-called “extreme economies” over the next decade should maintain demand strength for zinc. Zinc consumption could grow by between 5.6 million metric tons and 7.9 million tons, forecasts Emilio Tamargo, general manager of business development and research at Xstrata Zinc in Asturiana, Spain.
The industrializing nations tend to be Brazil, Russia, India and China, the so-called “BRIC nations,” while what investment bankers have labeled the “extreme economies” include nations such as Turkey, Poland, Romania, Egypt, Vietnam and Columbia. Tamargo tells Metal Bulletin’s 11th annual zinc conference in Madrid that the potential for substantial growth in consumption by these and the industrialized economies countries “is expected to remain sustainable for many years to come.”
Besides being a key coating for steel in the production of galvanized sheets and other forms, zinc is the alloying metal for copper used to make bronze and brass, and a die-casting metal. Zinc’s compounds also are used by the rubber, chemical, paint, agricultural and pharmaceutical industries.
Tamargo believes that zinc inventories will remain low over the next few years, according to a report in the subscription-only newsletter Nymex Direct, because of years of underinvestment in exploration and development of new mine supplies that only recently has been addressed.
Zinc is trading at $3748/$3758 today, position closed.
I recommend my clients to buy Lead today.
UMike
Klutzing in Thai
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Zinc down to $3619. 
up and down like a YoYo.
up and down like a YoYo.
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consolidating before the next upmove imo, those zinc inventories just keep falling
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