2009 @ 1.00 / i have been picking away since .20 / they gotta get going one of these days with the price of zinc moving /
from Resource Investor 19 Sept 05
Breakwater May Be Worth Another Look
By Michael J. DesLauriers
19 Sep 2005 at 06:17 PM EDT
TORONTO (ResourceInvestor.com) –- Over the last eight or nine years Breakwater Resources [TSX:BWR] has seen highs over C$9 and lows of under 10 cents. More recently the shares have been in decline with a recent bottom in the low 30-cent range and the time may finally be right to take a position.
Although zinc is widely seen as being the least attractive of the base metals the picture would appear to be improving, and given BWR’s leverage to the commodity and the beaten down nature of its share price, the potential rewards of an investment in the company would appear to outweigh the risks. Chinese consumption of zinc has tripled in the last 15 years and is forecast to grow by 8.7% this year.
Currently trading hands at 39 cents per share, Breakwater has a market capitalization of C$144 million and over C$30 million in cash. This year the company expects to produce 318 million pounds of zinc at a cash cost of 42c/lb. If one were to use an average price of 60c/lb to calculate BWR’s cash flow on its zinc production alone, the per share figure would come out around 15 cents. If a standard base metal multiple of 4X is applied one arrives at share price of 60 cents.
Five analysts in Canada cover Breakwater: GMP Securities, TD, Canaccord, CIBC and Sprott. The average target price is 66 cents with the group coming in with an average NAV for the company of 60 cents.
Readers of Resource Investor are well aware that China is the key to the base metal story and so far growth remains robust. In its recent annual report BHP Billiton predicted that China would remain a large and sustainable consumer of raw materials and resources over the coming decades. According to China’s biggest producer of zinc, Zhuzhou Smelter Import and Export, prices may rise to their highest level in 15 years over the next year as the country uses more of the metal to galvanize steel. So barring any unforeseen events, those that know the industry best are clearly still quite bullish.
Investors that believe in the Chinese consumption story and see the lack of investment in zinc mine capacity as keeping supplies out of the market in the medium term would do well to take another look at Breakwater, which offers the best leverage to the metal in a public vehicle. With reference to most standard valuation metrics the company would appear to be trading at a discount to its real value and the market’s inefficiency won’t last forever.
BWR might not be the best quality play around, with scattered projects and high costs, but its leverage is hard to match – leverage which can be augmented still with long-life publicly traded warrants.
Monday afternoon saw zinc trading at 64 cents, up 3% and shares in BWR up half a penny at 39 cents. |
