The $400 million capex estimate includes the refinery, and is up from a $200-250 million estimate a few years ago, so you should take the smelting costs out of your figures. They don't need zinc to hold over a dollar to make it bankable -- Skorpion went to production at $.35 zinc with higher capex. MMG has one of the few projects that would likely be economic at far lower zinc prices.
We'll find out MMG's costs from the feasibility study, but they'll be much lower than most zinc producers, so their profit margin on each pound of zinc will be much higher. Not only do they have higher grades than most, far more infrastructure, higher tonnage, and lower labor costs, but the processing to refine their oxide zinc is much lower cost, too. With their own refinery, they'll bypass the huge smelting costs of other zinc mines.
At the bottom of the metals bear market, with zinc much lower and many zinc mines shutting down and projects being abandoned, Anglo American bought out Skorpion when the feasibility study was completed for a valuation of over $120 million. When GTI put Skorpion into production, their cost for refined zinc was about $.25/pound, and zinc was about $.35/pound, so their profit margin was only about $.10/pound then. Now, their costs are up to about $.30/pound (as of last year), so with zinc having tripled, their profit margin is 7 times higher. Amazingly, their cost to produce SHG refined zinc is lower than most projects' smelting costs alone. Obviously, Skorpion is worth much, much more now.
MMG's current market cap is about $85 million (both basic market cap and adjusted market cap -- fully diluted less cash). With Skorpion, GTI has proven the much higher profitability of processing oxide zinc vs. the traditional sulphide zinc smelting process, and now they're doing it again with MMG's zinc project. Considering the pioneering Skorpion project with no infrastructure and more complex matallurgy was valued much higher when zinc was much lower, MMG has huge upside based only on the zinc project. I agree that numbers from the feasibility study will be needed to bring in a lot of investors from the sideline and add a lot of sizzle to the stock from the zinc side, but those will be coming soon. If they're even half as good as Skorpion's numbers, the stock should be worth much more just for this first project.
On the silver side, they're not dealing with narrow veins. We should find out much more about the silver soon, but I think they will surprise a lot of people with the grades, widths, and tonnage. Since there's no silver valuation in the stock yet, in this tough market, this is where the big sizzle is for them. |
