PATERSONS just released a client note - upgrade to valuation based on news:
Event
We look at the valuation derived from the spot zinc price, with the spot zinc price now $US$1.51/lb vs $US1.40/lb when we initiated on New Century on the 24/8/2017 (with a share price of $0.92)
To recap, a number of positive events have been announced since we initiated on New Century including:
A 23% increase in total zinc content from the previous Mineral Resource following a redrill program on the tailings (with resource upgraded to 100% measured, and a maiden silver and lead resource announced).
Move from 70% to 100% of the project through purchase of Century Bull Pty Ltd at an agreed price
US$45m (c.A$58m) debt facility from Sprott Resource Lending announced this morning (conditional on due diligence and other customary conditions precedent). The loan is at 10% interest per annum on a 3 year fixed term, with an equity fee of 1,687,500 NCZ ordinary shares.
Impact
Looking at a valuation derived from the current spot zinc price we generate $4.01/share, vs. our base case valuation of $3.24/share. Both represent over 100% premium to the current share price of $1.47/share. When we initiated on New Century, our price target was $2.20/share. Over the ensuing months, the upgraded resource, and increasing zinc price have resulted in an increased price target of $3.24 (+47%). Whilst the share price has risen c60% since initiation, there remains compelling value in the name
The project has been progressively derisked over the past few months, with release of the restart feasibility study expected in early November, giving firmer parameters for the project
This quarter we also expect the blockage (pig) in the slurry pipeline to be resolved in conjunction with the pipeline commissioning program
We attended a site visit to the project recently, which gave us further confidence in the strong project metrics
We retain our BUY recommendation on New Century
NCZ Price at posting:
$1.47 Sentiment: Hold Disclosure: Held
