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Looking at lead - Part 1



July 05, 2007 – Comments (0)

Lead has reached an all time high, about 6 times its low since the start of this bull run.  It is a strong price, but it isn’t as strong as say molybdenum which peaked about 18 times its low, or nickel, which peaked at around 12 times its low, or uranium which is about 15 times its low.  Strong lead prices will mean unexpected profits for lead producers.


The market is tight for lead Lead Rises to Record for Third Day in London.


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Lead deposits tend to exist with zinc deposits, this post looks at 5 companies that have some lead, Acadian Mining, Blue Note, Breakwater, Tamerlane and the Australian Zinifex.


Metal prices are highly volatile and many calculations giving metal values are done here.  They are intended to give a relative magnitude for comparison purposes--how good are grades relative to each other; how big are deposits relative to market cap; how much gross income can they bring in relative to each other. Higher grades and larger deposits tend to be more profitable.  I have given valuations for metals in the ground at today's prices.  In general, I believe that is a poor way to assess the value of a mining company and I look at it purely for a relative valuation.  Prices used for metal values per ton calculated are $650/oz for gold, $12.40/oz for silver, $1.50/lb for zinc, $3.50/lb for copper and $1.20/lb for lead.




Zinifex is the largest of the companies and it produced about 5% of the world's 2006 zinc supply, 1.4 billion pounds of zinc, and about 230 million pounds of lead.  As with the Australian mining practice, they maintain about a 6-year life-of-mine, and they have one mine has had a six-year LOF since 1893.


Few mines have a higher resource grade than their Rosebery mine, with an average resource of 15.3% zinc, 4.7% lead, 180 g/ton silver, 2.5 g/ton gold and 0.5% copper for an amazing $800/ton in metal values.  They have 7.1 million tons of measured, indicated and inferred reserves for close to $5.6 billion in metal values at this grade.  The reserves they are currently mining have about $610/ton in metal values


Their other big property is their Century mine.  The resources averages 12.7% zinc, 1.4% lead and 34 g/ton silver, for $470/ton metal values and with 60 million tonnes that’s $28 billion in metal values.  Their reserves suggest metal value currently being mined are about $420/ton.


Zinifex’s properties are exceptional and they have further development prospects with their recently acquired Wolfden in Canada’s north, which has properties with metal values per ton of $250-700.  They also have Dugald River and South Hercules for development. 


In Australian dollars, last year the revenues were over $3 billion and of that $1.1 billion was profit, making $2.20 per share and shares are currently priced at about $19, for a P/E of about 8.6.  Zinc prices peaked during this reporting period and have declined, but lead prices are up. 


In the US, under the ticker ZFEXF.PK, it trades at $15.90/share and with 488 million shares, it has a US market cap of about $7.7 billion.  At $1.50/lb zinc and $1.20/lb lead 1.4 billion pounds of zinc and 230 million pounds of lead would fetch $2.4 billion US gross revenue, or $2.9 billion Australian.  Gross revenue potential is close to 1/3rd of market cap.  Relatively speaking, with lead production potential of 230 million pounds their leverage to lead is not high; they are about six time more leveraged to zinc, but there is no question that lead’s ascent will be contributing nicely to their bottom line.




Tamerlane is a junior explorer with a fully diluted market cap of about $67 million.  Their prize property is the old northern Pine Point Mine, which historical records show they mined 64 million tonnes from 52 deposits with an average grade of 3.1% lead and 7% zinc, or about $310/ton metal values at today’s prices.  Currently they have 34 known deposits from non-compliant historical data indicating 70 million tonnes of ore with 4.19% zinc and 1.59% lead, or about $180/ton of metal values at today’s prices.   The grades and sizes of the deposits vary greatly.


Their flagship deposit, R190, has grades of 6.3% lead and 12.1% zinc for about $570/ton metal values and there are about 1 million tonnes of ore in this deposit, or about $570 million in metal values.


Tamerlane has plans to start building the mine in Q4/07 and to be in full operation for Q1 2009 and to mine the 240 million pounds of zinc and 120 million pounds of lead from R190 in 12-15 months, or half a billion at today's prices.  Six of the 34 deposits are close by and have metal values/ton about $290/ton, so without milling upgrades their second year of production rates would be about half what they get with the R190 deposit.


Financing the mill construction has not been arranged.  They are looking to forward sell some of their production to prevent further dilution, and appear to be looking at issuing 30 million in equity and 100 million in financing to move the project forward.  They have already run into obstacle in terms of implementing their plan as in April 2006 the plan was to start building in January 07 and be producing in December 07 of this year.


Tamerlane was closed down due to declining metal prices and increased costs due to flooding, and the high cost of maintaining a town for workers in the north.  They plan to deal with the flooding by implementing freezing technology around the deposits.  As the size of a deposit decreases the relative cost of the freezing technology increases exponentially, just as a ratio of surface area to volume increases as the volume decreases.  The economics of each deposit will be highly variable.


Breakwater Resources


Breakwater Resources has a fully diluted share capitalization of 460 million shares for a market cap of $1.5 billion.  Their 2007 production forecast is 268 million pounds zinc, 18 million pounds copper, 28 million pounds lead, 2 million ounces silver and 43,000 oz gold or total metal values of $550 million.  They also have an interest in Blue Note, which can be taken as shares or as 20% interest of their Caribou mine.  At current metal prices that interest could bring an additional $30 million in gross revenue for 2007.  Gross revenue has the potential to be around 40% of market cap.


Their Langlois property starting production this year and has a reserve with 10.1% zinc, 0.8% copper and 49g/ton silver, for metal values of $410/ton, for about $1.5 billion in metal values.  The resource has comparable metal values/ton and is about twice as big as the reserve for a combined total of about $4.5 billion.  The goal for this property is 62 million pounds of zinc, 3 million pounds of copper and 12,000 oz of silver.  Metal values per ton mined in Q1 were about $250/ton.


El Toqui has 8.9% zinc and 1.3g/ton of gold for $320/ton in metal values and is also projected to start production for 2007 with a goal of 61 million pounds of zinc, 6 million pounds of lead, 10,000 oz of silver and 2,600 oz of gold.  Metal values per ton mined Q1 were about $300/ton.  Total reserve/resources is about $4.5 billion.


El Mochito has 6.7% zinc, 2.8% lead, and 97 g/ton silver for $330/ton in metal values.  It is projected to produce 60 million pounds of zinc, 20 million pounds of lead and 1.1 million ounces of silver.  Actual grades mined in Q1 had metal values of $300/ton.  This property holds about $3 billion in metal values.


Myra Falls has resource with 7.2% zinc, 1.2% copper, 55g/ton silver, 0.6% lead and 1.7g/ton gold for metal values of $400/ton and has about $7 billion in reserves/resource.  It is projected to produce 84 million pounds of zinc, 15 million pounds of copper, 2 million pounds of lead, 660,000 oz of silver, and 17,000 oz of gold.  Actual grades mined in Q1 had metal values of $220/ton.


For Q1 prices Breakwater obtained in $US were $1.56/lb for zinc, $2.70/lb for copper, $0.81/lb for lead, $647/oz for gold and $13.03/oz for silver.  Earnings on $78 million of gross revenue were $15 million.  They are about 9-10 times more leveraged to zinc than to lead.



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