I honestly believe it's time for the Management to hedge the USD Zinc price for 100% of estimated production for the next two years - this will involve accepting some backwardation of the current zinc price but they still should realise at least $1.05/lb - this would ensure a very profitable margin when they're producing at a rate of 35mil lbs/month from next March which is just four months away.
Given current expectations from a range of market participants about possible prices next year, I think it would be irresponsible of the BOD not to lock in prices now for their product especially in light of the liabilities that currently exist on the Balance Sheet, namely the Varde loan facility and the rehabilitation liability.
They would be ensuring EBITDA surpluses of $30 to 35mil/quarter that would comfortably ensure that liabilities would be repaid and it would also give NAB confidence to finance their proposed insurance bond of $100mil to cover the rehabilitation liability.
Currently all the shorters(47.5mil shares) are betting on the USD Zinc price collapsing next year with a wall of supply and weak demand which is not out of the question so we need to take out the appropriate insurance, namely hedging to counter against this happening.
NCZ Price at posting:
34.8¢ Sentiment: None Disclosure: Held
