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SMRS Well-Positioned To Profit from Projected Zinc Shortage

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QualityStocks Member Level  Thursday, 04/21/16 08:45:49 AM
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SMRS Well-Positioned To Profit from Projected Zinc Shortage via Low-Cost Balmat Mine in Upstate New York

With numerous pundits currently raving about the bullish undercurrent for zinc, as a looming supply shortfall is predicted on the horizon amid ebbing China slowdown fears, it makes a great deal of sense to look at domestic producers in low-risk jurisdictions. Producers who can act as a profit vehicle for investors over the medium- to long-term price appreciation currently projected for this increasingly widely used metal, whose primary industrial consumption comes in the form of being used as an anti-corrosive galvanizing agent for iron and steel coatings. Given the recent closure of the Century mine in Australia by Melbourne-headquartered MMG, Ltd., whose majority shareholder is the state-owned corporation, China Minmetals, as well as big production cutbacks by the likes of Glencore (OTC: GLNCY) and Nyrstar (OTC: NYRSY), overall global production is off by around 10 percent, according to Haywood Securities’ mid-cap base metals guy, Stefan Ioannou.

Increased real-estate activity and infrastructural investment rebounding in China on the back of broad-based credit easing further underscores a supply equation shift that is apparent from the International Lead and Zinc Study Group (ILZSG) data, which shows how inventories went from a surplus of 183k tons at the outset of 2015, to a 60k ton deficit at the end of the year – even as total global inventories fell by 55k tons. Conservative estimates from the likes of JPM and Macquarie Research further confirm this bullish outlook for zinc, with mine output forecasts for 2016 falling 4.5 percent and 3.3 percent, respectively.

All of this throws a bright spotlight on a domestic zinc producer like Star Mountain Resources (OTC: SMRS), whose Balmat Mine is in upstate New York near the St. Lawrence River and the border with Canada. The IG7 report on Balmat (http://dtn.fm/4P3eK) out early this February roundly confirmed initial reserve estimates for the property (which was acquired back in November of 2015), showing some 585k tons of proven and probable reserves at a 9.2 percent grade. Given an estimated initial 2.5-year mine plan haul of some $80.8 million in revenues, as well as a broader 8.5-year mine plan that would consume similar-grade/adjacent reserves, Star Mountain Resources is the very portrait of a small, domestic producer, in an ideal jurisdiction, with the massive sulfide zinc mineralization digs needed to profit off this looming zinc shortage.

The noteworthy commitment to site safety and environmental stewardship for which SMRS is known should help to stave off any potential impediments for the company as it wraps up plans to finish the minimal overhaul needed at Balmat before the onsite mill can be shipping out high grade zinc concentrate to a hungry global market. Described as a low-cost, mechanized operation, with the mine equipment fleet in excellent condition, Star Mountain has every intent to, and seems capable of, actually exceed the planned production rate for Balmat, and SMRS has brought in the heavy guns to make sure its well-timed play pans out with maximum upside, retaining 30-year geological guru Dr. Mark Osterberg as the company’s new president and COO.

Zinc is only about a hundred bucks shy right now of the Capital Economics target price of $2,000 a ton by year’s end, and with the April 19 price around $0.86 a pound, the Haywood Securities per pound number for 2016 of $0.80 being exceeded speaks volumes. Especially when one considers Ioannou’s recent comment to Streetwise Reports’ The Gold Report, where he explained the Haywood Securities projection for 2017 is around $1.00 a pound.

For more information, visit www.starmountainresources.com

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