New Century Resources (NCZ.ASX) has released a number of strong announcements for their Century Zinc Mine in Queensland. Highlights include:
- Metallurgical Results – Substantial improvement in zinc recoveries of up to 64% (previously 50%) into a premium 50-53% Zn concentrate from Century Tailings Deposit;
- Metallurgical Results – Potential for additional payable metal credits through silver and lead;
- Tailings Drilling – Initial results from the first 22 holes of 175 program received and interpreted - Average grade 3.20% Zn vs Inf. Resource grade of 2.68% Zn;
- South Block - Multiple broad high-grade mineralisation intercepts identified as an extension of the Century Zn-Pb-Ag ore body; and
- South Block – Results include 26.4m at 8.1% Zn+Pb & 21.6m at 9.9% Zn+Pb.
Analyst Comment: Despite being listed for less than a month, New Century Resources has hit the ground running with a string of excellent announcement. And with the Feasibility Study due before the end of the year, we expect the run of strong news flow to continue.
First, metallurgical recoveries (60% to 64%) were significant improved compared to historical test work (50%) and far exceeded our expectations (53% – TSI). Based on these results we increased our recovery rate assumption (60%), which resulted in our forecasted production increasing from 100kt to 115kt of Zn metal per annum. This however assumes throughput of 7Mtpa which is in line with the previous hard rock operation. Given the likely change to the front end of the processing facility, we expect throughput to increase significant as part of the Feasibility Study (4Q17), which intern increases annual production further.
Secondly, results from the tailings drilling is around 10% higher than our assumed head grade. Assuming results remain in line with current results, this could see the grade of the resource increase when an update is released later this year (4Q17 – TSI estimate).
Finally, the historical exploration results for South Block were some of the more impressive zinc exploration results released by an ASX company for some time. This again highlighted the significant potential for further hard rock discoveries in the region. It also reconfirmed our opinion that hard rock mining will probably recommence at Century in the future.
The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.
Valuation: We have increased our valuation for New Century Resources $1.54 / share (previous – $1.20 / share). The increase in our valuation is due to an increase in our zinc recovery assumption (current 60%; previous 53%) as well updating our zinc price (current - US$1.25 / lb; previous – $US1.16/lb) and FX rate in-line with the current market (current – US:AUD 0.78; previous US:AUD 0.75).
We will review our head grade assumption (2.73% Zn) at the completion of the drill program. However if our head grade was increased to 3% Zn, our valuation increases to $1.74/share.
Finally, we have not attributed a valuation for the hard rock resources or the significant exploration potential at this stage. This is despite our belief that the hard rock assets are likely to add significant value to the company long term valuation. We will review this assumption when an initial resource is released for South Block.
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