Thought I'd share my key inputs/outputs of my model as I can't see how NCZ could not achieve an excellent September quarter.
Someone tell me where I am wrong as I can't stop buying sub-$0.20!
Price: Average Zinc price in June Qtr as reported was $0.89/lb. Current spot is $1.1178 and with reduced South American production this implies prices should firm (or at least hold) for remainder of quarter. I have assumed an average $1.07/lb over the quarter. NCZ said in last quarterly that the current balance (as at 30 July) of QP settlements was $7.3m (Cash) … This balance will only increase as the spot price trends north. I have assumed $8m cash inflow in the quarter (however this could turn out to be conservative in this price environment). Assumed Q2 average price of $1.10 (still below spot) and Q3 $1.15 and Q4 $1.10
Volume: 3 cannons now online with capacity of 3.5mt each. Zinc metal production in FY20 was 116,949t. Company forecast is 140,000 to 160,000 in FY21. I have assumed 150,000 as the midpoint (with quarterly profile of 36 in Q1, 37.5 in Q2 and Q3, and 39 in Q4). Q1 production of 36,000t is 4.8% above last quarter but more importantly 37.6% up on the same quarter last year.
Cost: Company has an exceptional history of accurately forecast cost (eg FY2020 Q4 quidance was for C1 costs to be in a range of $0.73 to $0.82 and they came in at $0.79). With TC's trending significantly lower, and volumes increasing (70% of costs are fixed and hence get spread over greater volumes), expectation is for AISC to be $0.80 in Q1 and decline to $0.75 by Q4.
Based on these assumptions, estimate is for around $95 to $100m of FCF over the FY2021 period as compared to current market cap is $181m
In summary, prices are up, volume is significantly up YoY, costs are falling AND the fixed cost base is being amortised over greater production volumes... All this leads to expanding operating margin and CASH...
Can someone point out what I am missing so I stop selling shares I said I would never sell to buy more NCZ!
All in my opinion... Not for reliance... Do your own research
CC
NCZ Price at posting:
18.5¢ Sentiment: Buy Disclosure: Held
