Growth Focus: New Century Resources Ltd (NCZ)

by Patrick Taylor



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.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.