Some investors gravitate toward junior mining stocks because they recognize the possibility of huge gains either long-term or short-term depending upon the environment. Finding these types of companies could take a lot of time because are so many of them. In today's market environment it could be hard finding the right one. One company that I believe is worth an investor's time and research would be Zinco do Brazil (ZNBR).
Zinco do Brasil, Inc. is a Brazilian-American Junior mining company that explores develops and operates in very "world-class" mining assets in Brazil. Presently the company is in the exploration phase of property it has in Brazil. It owns 30 mineral rights for a total area of 44,665 hectares in the Brazilian state of Minas Gerais.
There are a couple key things this company has that could make it a very good investment. I believe two important characteristics a junior mining company like needs that would dictate its long-term success would be the "management team" and "location" of its land. Let's take a look at both of these characteristics of the company.
So how does investor pick a good junior mining stock?
Junior mining stocks like Zinco do Brazil are attractive to investors because the probability of one of these small Junior companies exploding on the scene does wonders for an investor's return. But these companies can also be a dime a dozen. It may not be uncommon for a geologist/engineer to have a "parcel of land" that is researched and has potential. Forming a company to extract the metals, many small companies like this anticipate larger companies buying them out after they have raised millions. A challenge a company like this may run into would be management's ability to grow the company larger. If they don't have the expertise or experience in doing so, there are no guarantees and that they'll be able to. I believe any investor should take a close look at the management of a Junior mining stock and I observe if they have experience in growing something small into a larger company.
The management for Zinco do Brazil has experience building larger companies and that's why I encourage investors to explore management's experience. This is important when anticipating the profit potential.
- Edward Dowling is on the board and he is the former CEO/Pres. of Meridian Gold taking the company from $70 million to $3.5 billion in market cap. He is also the former CEO/Pres of the company known as Alacer Gold (formerly known as Anatolia Minerals) (GM:ALACF) and took that company from a $300 million market to a $3 billion market cap. He also is an Independent Director with Teck Resources Limited (TCK).
- Juvenil Felix is another member of the board and he is a former COO of Jaguar Mining (JAG) and helped bring that company to a $1 billion market cap while he was there.
- Mustafa Aksoy is Zinco's director and has extensive experience in building large mining companies. He's the CEO of Calik Holding's mining division, which operates Alacer Gold's (Ed Dowling) projects in Turkey. Calik Holding has 20,000 employees in Turkey. Between he and Ed, these is extensive experience in building companies, getting projects off the ground, and operating mines profitability.
The company is presently bringing on a new executive who has taking a mining company from $400 million to a $14.4 billion market cap. The company peaked at $25 billion during his tenure.
Minerals being pulled out of the ground do no one any good unless the management team knows what to do with it. The team must know how to turn those resources around into a profit so the company can continue to grow and expand as needs be.
This company has the expertise and experience behind it grow a Junior mining company into a larger company with market caps that could go into the billions of dollars. The investment in a company like this will take years to see the large returns that investor would expect. But long term is good because this is what we invest in these companies for. We are not expecting a quick return; we are expecting our investments to grow with the company. And with a team like this, it looks promising.
Location is one of the big factors in determining whether one of these companies could be profitable in the long run. There are many factors to consider including politics, the economy, and how friendly is a government toward these types of minds.
Brazil is a very supportive government and the state that the land parcel resides in the company is developing gets subsidies from the government inviting other companies into the region. On top of this, environmental opposition is minimal which could be a great cause of cost overruns or delays in mining operations.
The government of Minas Gerais, the state in Brazil the company works in, is in the third year of a development program designed to make access to mines much easier and cost effective. Not only is it paving roads leading to mining sites, but water development through a series of projects including dams and reservoirs are also in the works. The CODEVASF Gorutuba dam is less than 14 km from the Salobro deposit that Zinco do Brasil is working which gives it an excellent source of water.
- Salobro project was purchased from Vale SA (VALE).
- Vale SA conducted exploration work including 34 drill holes for a total of 13,159 meters of diamond drilling up to 400 meters deep.
- The assumptions by Vale and an independent mining consultant estimate for indicated and inferred resources (in situ) of 5.4 million tons and grades of 6.24% Zinc and 1.19% Lead for only 1,000 hectares of the 1,685 hectares total area of Salobro.
- The company expects the Salobro reserves to increase by 30 - 50% during the exploration drillings scheduled for Q3 and Q4 of 2013 to prove up reserves to 43-101 standard.
- The Salobro project is expected to go into production in Q3 of 2016
- Produce in excess of 30,000 metric tons of Zinc and 5,000 metric tons of Lead per year during the mine-life of 10 years.
- With an IRR greater than 24% and a payback of 3.5 years from commencement of operation.
- The Gorutuba project consists of 28 mining rights containing an area of 42,980 hectares in total.
- data gained from airborne geophysical survey conducted by the State of Minas Gerais
- The study revealed that the geophysical characteristics of the Salobro deposit is highly correlated with seven targets within the Gorutuba project area, showing similar anomalies like Salobro.
- The extent of the seven selected targets is 17 km and a drill program is scheduled to start in 2014 to confirm each deposit
- Initial geochemical studies indicated other anomalies of Copper and Gold within the Gorutuba projects/targets.
Outlook for Zinc
Even if we do have a global economic slowdown, the outlook for zinc is good. Europe could define a bottom this year which would help the global markets but even with that, forecasted growth for 2013 is at 5.2% and as high as 5% for 2014. But I think a word of caution is relevant here, many forecasts, including zinc, are based upon a moderate growth forecast in the Asian market. So much of the expectations of what metals will be doing depend a lot on Asia also.
The main regions of infrastructure growth are central and western provinces. Further growing demand also is expected in India, Indonesia, Taiwan, Turkey and Thailand. Asia is the main market for growth. This is good news and one thing that may continue to vault zinc to healthy price levels would be the closure of many large minds in the next few years and the lack of new mines in development. Since there is a gap in the pipeline, this should create a bullish outlook as we go from an oversupply to a supply shortfall.
In today's global economic environment, where investment funds for long term projects are tight, this benefits metals like zinc. New mine start up projects are always large and expensive endeavors. It is not an easy feat bringing capitalization to these types of projects. For this reason many of them taking place are either restarts or expansions because the costs are so much less. Most of these are also small and have annual productions of less than 100,000 tons. Most of the major mining companies are not involved in zinc production at this point in his left to smaller companies to develop.
It has been estimated that 1.9 million tons of production will be lost by 2015. But if economic development continues as analysts believe it will, annual growth for zinc is estimated to be at 500,000 tons per year. Large-scale mining development will be needed just to keep up with demand. This bodes well for Zinco do Brazil and its development in the Salobro region.
One way to gauge the demand for zinc is to look at "galvanization" which makes up nearly half of the demand for the metal. Galvanized steel started to rebound the first quarter of 2012 as China and the United States lead this growth. Japan is another country with a large steel industry but the recovery from the earthquake and tsunami is still affecting that industry. As all three economies continue to recover, the demand for galvanized steel is expected to continue to increase, particularly in China.
Zinc prices are expected to rise in the near future, and can be tied to a shortage in inventories. This naturally would lead to a supply problem increasing the price of the metal. As global recovery continues to inch its way forward, zinc prices are expected to gradually rise through 2020. Do not be surprised if in the short term prices dipped before it starts to rise. Of all the base metals, zinc has one of the best fundamental outlooks.
Outlook for Lead
In 2013, the use of lead globally is expected to grow by 4.8%. The rise will primarily be driven by China which is expected to increase by 6.7% primarily due to the rise in automotive production. Even though the recent economic statistics in China point to a manufacturing slowdown, the government is aggressively promoting foreign investments in automotive production in its Western and Central provinces. I believe this will continue to encourage automotive production so the adverse effect upon lead production should be limited. Minimal growth in United States of 1.2% parallels economic expansion and a surprising increase of 1.9% on the European continent that looks for a bottom to its recession could mean yearly increases on out. Mining output should increase by about 3.5% this year. Refined lead will remain in surplus this year.
Investing Atmosphere And Conclusions
It is important for investors to understand everything that they possibly can about a company, but I also believe current investing atmosphere is also important. An investor doesn't want to throw money somewhere without having a full education on what they're getting into. The resource sector has had its challenges over the last year. Analysts have continually lowered revenue and profit expectations for corporations across sectors and since commodity prices have also dropped investors overall have been hesitant to put money in resources. For this reason company valuations are becoming more conservative.
The present bullish run in the markets are dependent primarily upon the stimulus package from the feds. In order for a "full recovery" in the resource sector I believe we need to see greater increases in job, but we are not there yet. It appears that the Feds may soon start to wean the markets off the stimulus package. I would expect the markets to react negatively to this and we could have a sizable pullback as the market learns to depend upon itself. I don't consider this to happen long term though. Overall this is good for the markets and this is good for the resource sector. As the economy starts to learn to depend upon itself, investments in concrete areas like resources will pick up and become more interesting to investors.
So what does this mean for you as an investor? Companies like Zinco do Brasil that have a management team that knows how to grow a mining business guiding it from exploration into full production. It also knows how to grow the company into that phase of its business. Zinco do Brasil has good "metal estimates" to pull out of the ground and the base metals like zinc which are expected to transition into an under supply as the land gets closer to production appears to be timed perfectly.
The company has what it takes to expand and grow in my humble opinion. Investors that look for Junior mining companies like Zinco do Brasil for an investment with a high return over time may have found one in this company.
As I would advise all investors, I believe this company is worth further research if you are interested in Junior mining stocks. These are long-term investments; they are not short term investing strategies. But it is my opinion that this company has the chemistry to allow one's investment to grow like one would expect investing in a Junior mining company. The management team has already proven itself and has a track record of growing companies like this to greater sizes.
Take a look at this company and do your own diligence and you may find a diamond in the rough worth a long-term investment.