<< If zinc prices stay high a higher priced zinc project with more ore would be my preference. Whether it costs .40 to produce or .60 to produce at $2/3/4 it is pretty much a moot point and one will pay a huge premium for the low cost mine. >>
My preference would be a lower priced zinc project with more ore trading at a huge discount.
You would be right about BWR vs. MMGG if MMGG traded at a “huge premium” to BWR, but it doesn’t – it trades at a huge discount, as I showed here: Message 22964335 . While the low cost justifies a premium for MMGG, the pre-production, pre-feasibility study completion status, along with the bulletin board status, combine to give it an enormous discount. IMO, all those disadvantages creating the MMGG discount will go away even if the price of zinc collapses, while the advantage justifying the premium, low cost, will only be amplified.
As the price of zinc increases, BWR’s refining costs escalate because of price escalator provisions in treatment charges:
Per tonne sold, total treatment and marketing costs increased to $479 in the third quarter of 2006 from $287 in the corresponding period in 2005 as higher metal prices triggered higher costs associated with price escalator provisions in treatment charges.
Even with higher by-product credits from their other metals offsetting some of the increase, BWR’s cost per pound of zinc sold increased significantly, by over 58%:
The total cash cost per pound of payable zinc sold, which includes direct operating costs and treatment and marketing costs, net of by-product credits, was US$0.57 in the third quarter of 2006 compared with US$0.36 in the third quarter of 2005
MMGG, on the other hand, is building their own refinery, which is included as part of the feasibility study and the capex costs. Not only will they not have to pay any treatment charges to anyone else at their own refinery, but they also may benefit from higher treatment charges if they process zinc from other oxide zinc mines (e.g., Zincore). Since they’ll have the only oxide zinc refinery in the world other than Skorpion’s, they’ll be in much better negotiating position than other refiners/smelters if other oxide zinc mines go to production without a refinery.
So with their own refinery, MMGG’s low cost advantage grows with higher zinc prices as BWR’s treatment charges escalate, and with lower zinc prices, MMGG’s low cost advantage grows because of their higher operating margins. It seems no matter what happens to zinc prices MMGG has an advantage, especially given its enormous discount in the market. All this assumes MMGG makes it to production, but your thesis is that even marginal projects will make it to production, so that shouldn’t be an issue.
Until MMGG erases its huge discount and trades at a huge premium to higher-cost zinc mines, I think it remains the best way to play the zinc market. |
