Date of Data Capture: 22/3/2019
Name: New Century Resources Ltd (NCZ)
Classification: Zinc Mining
Current Price: $0.84
Market Capitalisation: $424M
Forecast EBITDA Growth: Restarting Production
Yield Estimate: 0%
Consensus Price Target: $2.10 (thin coverage)
# Covering Analysts: 1
Discount at Current Price: 150%
Price Target Trend: Flat-Decreasing
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Down / Medium-Short
Indicators:
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive-Neutral
Recommendation: Buy
Focus: Capital Growth
Set up Notes:
· The refurbishment and recommencement of zinc mining at Century comes with a background market showing increasing consumption and demand, lower grades and stockpiling, and renewed strength in zinc spot pricing in 2019.
· Century was previously a top 10 global zinc producer and is on track to be so again in 2019, and will do it at a comparably low price and cost ratio, with production ramping up into 2020.
· Pricing has been volatile with strong gains in 2017 giving way to a major pullback during 2018, but here we see NCZ breaking above resistance on fresh pricing strength and positive signalling.
• Support ($): 0.80, 0.70 & 0.60.
• Resistance ($): 0.90, 1.00, 1.20, 1.40 & 1.50.
Growth Focus: New Century Resources Ltd (NCZ)
The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.
It takes discipline to invest in a company that has fallen more than 65% since 2017, but here we are looking to do just that with New Century Resources as the reborn major zinc miner recommences production with a much improved cost base that should galvanise investors.
The Century zinc mine is located near Mt Isa in northern Queensland and operated from 1999 to 2016, becoming one of the largest zinc mines in the world, before production was halted by the previous owners. New management took over the asset and underwent project restart feasibility studies in 2017, highlighting a strong case for extending the life of the mine and realise untapped value in reserves and exploration potential.
Timing is important for any single commodity company and the zinc pricing cycle seems to be working in the new managements favour, with zinc pricing rallying hard after the mine had been shut down, with spot price doubling from 2016 to 2018. For much of the last year we have seen the same spot pricing consolidate that huge rally lower by over 30% by late 2018 before rallying higher again in 2019. This renewed price strength comes coupled with falling global production, increased usage and generally lower level zinc commodity stockpiling, all helping to increase the underlying potential of this project.
The management team is strong with high profile board leadership, and the company boasts a strong internal ownership with over 36% of the company held by the directors and managers. Mine projections offer strong baseline return estimates with production costs set to be in the lowest quartile while maintaining high margins, along with enterprise value being the lowest of any global top 10 zinc miner. Going forward New Century will be looking to initiate dividend payments but really we are here for growth and it adds confidence that a recent executive addition has performance options targets set at $1.20 and $1.50, offering a significant gain from here.
Pricing history has been volatile, but also fairly typical for a company being pulled out of mothballs, with a huge price spike in mid-2017, followed by about 17 months of attrition where the stock was pulled lower by around two thirds. Here we see price bouncing off a $0.60 support base from early-2019, moving higher through linear resistance and setting up a fresh potential long-term uptrend here. We see good long-term positive signal correlation, combining well with shorter-term signalling, and if we are right we should expect to see NCZ knock the rust off its current valuation.
