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Taking Stock of SMRS's Zinc Stocks

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QualityStocks Member Level  Tuesday, 08/23/16 08:56:52 AM
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Taking Stock of SMRS's Zinc Stocks

There is no doubt that Star Mountain Resources, Inc.’s (OTC: SMRS) stock is rising. The recent Industry Guide 7 Report (IG7 Report) prepared according to U.S. Securities and Exchange Commission (SEC) rubric paints a rosy picture of the Tempe, Arizona-based junior exploration and mining company’s prospects in the zinc market. The report showed that Star Mountain’s Balmat Mine in St. Lawrence County, New York, has proven and probable reserves of 585,000 tons of 9.2 percent grade zinc that could generate $80.8 million in revenue over the first 2.5 years of operation. Star Mountain acquired the Balmat mine in November 2015 and since then has been gearing up to resume production. There couldn’t be a better time. Supplies are falling and zinc prices are rising.

Data provided by the London Metal Exchange (LME) illustrate this year’s market trends for refined zinc. Stocks registered with the LME have been falling steadily since the start of this year. On January 5, 2016, the LME reported opening stocks of refined zinc of 460,475 tonnes. By the end of May 2016, those stocks had fallen by 17 percent to 380,450 tonnes. During this five-month period, price and stock changes were inversely correlated, as might be expected, with prices falling if stocks rose and prices rising as stocks fell.
Prices appreciated by 23 percent, rising from USD 1,547.00 per tonne to USD 1,906.00 per tonne.

However, the opening stock figures reported by the LME have been increasing since the end of May, albeit not continuously. From 380,450 tonnes at the end of May 2016, they rose to 442,700 tonnes at the end of June 2016, fell to 431,200 tonnes by the end of July 2016 and rose again to 455,875 tonnes on Friday, August 19, 2016. Registered opening stocks of refined zinc have climbed by almost 20 percent since the end of May, yet prices have kept on rising. There’s obviously more to this than meets the LME eye.

There is some suggestion, judging from International Lead and Zinc Study Group (ILZSG) reports, that global zinc inventory includes metal in government coffers, such as the State Reserves Bureau (SRB) of China, and stocks held by producers and speculators as well as exchange-registered tonnage. Consequently, delivery to the ‘official’ market may cause disturbing shocks.

A Reuters report (http://nnw.fm/LiDh2) details the sudden arrival, in the third quarter of last year, of ‘250,000 tonnes of zinc… delivered onto LME warrant, just about all of it at New Orleans’. A similar event occurred in February 2016, ‘when 50,000 tonnes hit the exchange’s warehouse system, although New Orleans only accounted for 8,725 tonnes, the rest arriving at the Malaysian ports of Port Klang and Johor’ . A warrant is a document of possession, issued by the warehouse company, for each lot of LME-approved metal held within an LME-approved facility. Warrants are used as the means of delivering metal under LME contracts.

Zinc, it seems, is beginning to materialize from thin air.

All of this indicates how rosy Star Mountain’s fortunes are with its Balmat mine. The mine, which has produced over 30 million tons of zinc so far, commenced operations in 1930 and produced continually until 2001 when zinc prices fell. Operations started again for about two years, from 2006 to 2008, when falling prices again caused a halt. Star Mountain also possesses an interest in the Star Mountain/Chopar project with 116 lode-mining claims and four metalliferous mineral leases, which cover 3,730 acres located in the Star mountain range of the Star mining district in Beaver County, Utah, and the Ogden Bay Minerals project located in West Ogden, Utah.

For more information, visit www.starmountainresources.com

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