Hi LittleArtZenith (ZNC) is under-priced (absolutely and...

Hi LittleArt

Zenith (ZNC) is under-priced (absolutely and comparatively)

I agree with your conclusion that “the ZNC share price has dramatically underperformed the RTR price since the Earaheedy announcement and by a big margin”.

Isee that zenmammon and Feeenix73 have similar views, and to quote mining reporter Barry Fitzgerald from your Post #: 52695358,

" On a look-through basis,Zenith’s share price gain has been underdone. Compared with Rumble, its market cap should be up by some $58m or 20 cents a share. It’s actually up by $32m or11 cents a share. The implied discount for its share of the Earaheedy discovery is common stuff for junior partners generally, and may or may not be unwound as time passes."

I think:

·that makes ZNC a compelling buy ...

·especially as it’s a very exciting discovery, which the market (quite naturally at this very early stage) has not yet fully priced in.

.

If ZNC wasn’t in the JV, I’d have bought RTR but I think ZNC is a better entry. I think the implied discount will be unwound, so I’ve bought a reasonable chunk of them, while continuing to hope that Rumble goes well too.

1. Great discovery

I described the discovery as “irresistibly high potential” in this Post #: 52658915 due to its sheer size, shallow depth, good grade and being in a great mining jurisdiction in W.A.I can’t do justice to its potential here; read both company’s announcements of 19 April instead.

However,here’s an extract relating to Chinook only, despite there being many kilometres of mineralised trend.The purple arrows and “Nice!” and “...only Chinook” comments were added by me in my Post #: 52658915.

The following images are important too because see my blue arrows pointing out how the faulting has uplifted the sequence, making it shallower there.Less overburden saves shifting costs, so improves value.

Early news flow likely

The project will provide good news flow because:

·Being at shallow depth and sandstone hosted, they’ll drill a lot of holes quickly;

·It’s in Rumble’s interests to get the project to BFS (Bankable Feasibility Study) ASAP since they’re carrying all of Zenith’s costs i.e. 100% of the project costs until then and so will be keen to revert to just paying for their 75%.

Corporate Action?

If the project unfolds as expected there’s a very good chance IMO that a significant base metals producer will acquire the asset, by takeover(s) or otherwise.If that occurs, any pricing anomalies between the 2 companies will disappear.

Relative Values

I expect further significant further increases in MC, as the project becomes derisked.Focus will come to not just the value of the entire project but inevitably also to the value of each percentage point of it - plus or minus any special considerations for each JV.

Zenith’s Free Carry (ZNC $6M to $7M asset -v- $6M to $7M cost to RTR)

This project demands a lot of drilling to demonstrate its talked about Tier 1 potential– especially with possible corporate predators watching.You don’t want to skimp on drilling, to suddenly find you’re the target of a hostile takeover bid but are unable to convince your shareholders that the fair and reasonable value of your stock would be way higher if only you’d drilled more.You have to act quickly after a large-scale discovery like this. Watching the buy orders in RTR in recent days, some corporates might already have pickedup a few.There were many multi-hundred thousand dollar bids.

At present, RTR has to pay 100% of the project costs until BFS in order to earn75%.BFS might cost, say $20M - $30M.Assuming for simplicity that it cost $24-28M, RTR would pay all of the drilling and other project costs up to then, while Zenith will be free carried. Using that example, that carry would notionally be worth +$6M to 7M to Zenith (~ 2.2c / share, based on 294.4M Zenith shares on issue) and -$6M to -$7M to Rumble.

Zenith’sRumble shares

Asat March 2021 (see their Investor Presentation), Zenith also had 3.8M Rumbleshares. At Rumble’s closing price of 55c on 23 April, they were worth$2.09M (or 0.7c / ZNC share) – better than a poke in the eye with a burntstick.

Share Price Implications for ZNC

Zenith, being free of the need to pay say $6M - $7M or so for its25% JV share of project costs up to BFS; and with possible cash flow from the sale of its RTR shares, will not have to dilute the value of its 25% share over further shares on issue until it does a cap raising perhaps for its other projects first. (It had $3.8M cash – plus the RTR shares - at 31 Dec 2020).

Other Projects

Each company has ‘other projects’ that could become significant.I’m not going to try and assess them here but if RTR is being attributed say 3 times the MC of Zenith (because its project interest here is 75% -v- Zenith’s 25%), it would nominally need to have 3 times the value of Zenith’s ‘other projects’ (and cash and other assets) to avoid adjustments for them in doing a MC comparison based off this project.I like the other projects of both companies BTW.

So ...?

Putting this in a table and with the above assumptions (which of course can be debated),its possible IMO to arrive at a current valuation (on a broadly comparable basis) for Zenith of~ 36c. This is 50% above where they closed on Friday. I think both companies will end up with much larger market caps when this Project is fully understood. Share prices will of course depend on SOI at the time.Expected less dilution for Zenith because of the carry referred to above and because Rumble is paying for its 75% anyway, should serve Zenith's share price well. That’s why I’m a Zenith buyer.

	Prepared 25 Apr 2021	Rumble	Zenith
1	Project Interest	75% paying 100% until BFS	25% free-carried by RTR until BFS
2	Market Cap 23 Apr 2021	$292.7M @ 55c	$70.65M @ 24c
3	Zenith MC - notional 75:25 ratio this project		$97.56M (= 33.1c/share)
4	Zenith Free Carry	COST of $6M-$7M	Est. $6M-$7M (say +2.2c/share)
5	Zenith’s shares in RTR	N/A	~$2.1M (say +0.7c/share)
6	Cash - Dec 2020	$4.2M	$3.4M
7	Other Projects	Not assessed	Not assessed
8	Shares on Issue	532 M (+ 26M unlisted options)	294.4M