Palisade Research - Fri, Nov 24, 2017

A Zinc Bull In A China Shop

article title text beside a shiny grey bull figurine

The world's zinc supply is diminishing.

The machine that is China is once again rearing its insatiable head - the same machine that propelled resources to their all-time highs during the last supercycle.

And now zinc warehouse stocks are already at 10-year lows.

line chart showing start of year LME zinc warehouse stock levels in tonnes from 2007 to 2017

China accounts for nearly half of global zinc demand at 15 million tonnes - it is expected this year will end with a 700,000-tonne shortfall.

Thus, all smelters and factories that produce metal from ore are scrambling for mine supply, and are all losing.

In fact, Korea Zinc, the World's largest smelter of zinc, recently announced it was cutting production by 8%.

Not surprisingly, zinc prices are now surging - already up 26% this year alone.

line chart showing 2017 monthly per pound zinc prices

According to the London Metals Exchange (LME), one player holds more than half of the LME material available.

Private storage has also been pillaged.

Needless to say, zinc is poised to go on an absolute tear.

But which company has the most torque? The answer is Benz Mining.

Benz Mining (CVE:BZ, FRA:1VU) - The Cheapest Zinc Developer In Canada

(V.BZ) Benz Mining stock details in C$: share price, shares outstanding, market cap, cash on hand

It took Miloje Vicentijevic and his team over six months to find the perfect zinc project.

But they finally found it in the Mel Zinc-Lead project, located in mining-friendly Yukon.

The project was originally held by Silver Range, but due to a change-of-business, was optioned to Benz on favorable terms.

Silver Range believes that Benz and its roster of mining engineers will fast-track the project to production.

And Benz has wasted no time, already completing an internal scoping study and a timetable to production.

The Mel project is located 40 kilometers north of the Alaska Highway in southeast Yukon.

Unlike many other projects in the Yukon, it is easily accessible and surrounded by great infrastructure.

area map locates the Mel Project

The Mel project is located within the prolific Selwyn Basin, home to the largest zinc deposits in the world, including the Selwyn deposit, which boasts an indicated resource of 9,642 kt zinc and an inferred resource of 10,612 kt. This is the third largest zinc project in the world, and second largest in development.

So, the Mel project is not only in a jurisdiction known for its zinc deposits, it has had ample historical work to prove its incredible potential.

Prior to Benz, there were 90 holes drilled for 16,759 meters.

The project has also seen numerous soil geochemical surveys, geophysical surveys (IP, gravity, VLF, and magnetics), metallurgical test work, and several resource estimations.

plan view of Mel and Jeri deposits with a labeled legend of mineralized formations

The Mel Main Zone hosts an inferred mineral resource of 5.28 million tonnes grading 6.51% zinc, 1.86% lead, 45.05% barite. This is a zinc in-situ value of US$1.05 billion and lead value of US$242 million. The barite is an additional kicker. It provides an opportunity to monetize what would otherwise be waste-rock.

The Main Zone still remains open on strike and depth, while the Jeri and Jeri North Zones have had limited reconnaissance-level drilling. The East Zone remains untested by drilling. This means there is significant upside potential.

Benz Mining recently completed a 9-hole in-fill drill program, which confirmed the mineralization in the resource model. Highlights included:

  • Hole No. 053: 11.15% zinc with 0.33% lead over 3.53 metres true-width;
  • Hole No. 053: 13.35 metres true-width total intercept averaging 6.41% zinc with 0.97% lead;
  • Hole No. 056: 27.78% zinc with 0.65% lead over 2.38 metres true-width;
  • Hole No. 058: 10.93% zinc over 4.94 metres and 16.65% zinc over 0.78 metres, both true-widths;
  • Hole No. 058: 12.90 metres true-width total intercept averaging 8.45% zinc with 0.26% lead.

The project was sought as a zinc project, thus has not been tested for concurrent precious metal mineralization. There is a very high likelihood that silver can be recovered.

Preliminary metallurgical tests have yielded high flotation concentrates, including 62.8% zinc and 78.0-78.8% lead, and recoveries of 93.3% zinc and 97.9% lead.

Compared to other Canadian zinc companies, Benz Mining is the cheapest by far:

bar chart of Canadian zinc developers with EV/zinc price which averages C$42/tonne

Looking at solely zinc, Benz Mining is currently trading at C$8.80/t, while its peers trade at an average of C$42.00/t.

This disconnect in valuation is confirmed by Benz's internal estimates.

According to the internal scoping study, the initial CapEx will be C$125 million, and the project will yield an average EBITDA of $56.3 million per year, after production start-up for the first 7 years. Based on current market prices, this yields an NPV8 of C$152 million and IRR of 30.23%.

Next steps? 2018 will see further drilling to upgrade the inferred resource to the M&I category. We will also get more of information on the tenor and distribution of silver in the Mel deposit.

Permitting will also begin in 2018, which will be vital for the updated PFS. Benz Mining believes it will be in production by 2021. As one of the few projects slated for near-term projection, you can imagine the kind of interest it will garner by starved smelters.

The Benz team is led by experienced management that includes a $650 million past zinc transaction. While the economics of the project are appealing, there is incredible upside in additional high-grade deposits.

With zinc also poised to explode, we cannot imagine Benz Mining flying under the radar for long.

Palisade Global Investments Limited holds shares of Benz Mining. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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