TORONTO (ResourceInvestor.com) -- EuroZinc Mining [TSX:EZM] is known on the street as E Z Money on account of its ticker symbol and solid fundamentals. The company has delivered a robust performance ever since its acquisition of the Neves Corvo Copper/Zinc deposit from EDM and Rio Tinto last year. Recent first quarter numbers were promising, and the shares continue to look fairly cheap based on strong cash flow and an exciting growth profile.
EZM is focused on two base metals projects, both located in the Portuguese portion of the Iberian Pyrite Belt (the worlds largest VMS belt), which plays host to 60 mines.
At Neves Corvo, EuroZinc is on track to produce 200 million pounds of copper this year and is aiming to bring on zinc production of at least 55 million pounds (annually) by mid-2006. The company is also fairly advanced in a study to determine the potential for doubling that number to 110 million pounds, or more. The capex for development of the zinc deposits at Neves Corvo and to retrofit a tin plant on site is estimated at $5.2 million, producing an IRR number in excess of 80%. Doubling production would likely only entail the securing of additional equipment, so the cost of doing so would remain reasonable. The cash cost per pound of zinc is estimated to fall between 25c and 28c.
EuroZinc's Aljustrel project is located about 40 kilometer's away from Neves Corvo and contains two main deposits with a resource base of 16 million tonnes of 5.04% zinc, 0.46% copper, 1.63% lead and 57.76 g/t silver. This equates to an equivalent zinc grade of 7.52%. EZM is currently updating the original feasibility study to reflect more current metal prices, exchange rate projections and capital and operating costs. Infill drilling over the last few months appears to be indicating higher grades than originally reported and a fully updated reserve calculation can be expected in the near future.
The project is technically feasible and quite attractive at current metal prices. However, according to the company, "the opening of the mine is contingent on management establishing suitable agreements with labour and government on some oustanding key issues for the company, and establishing a suitable financing arrangement, which management is currently working on". Meetings with the union are ongoing with EuroZinc looking for some clear resolution within the next month. If everything goes according to plan, Aljustrel will produce an additional 170 million pounds of zinc for the company, by mid-2006.
Investors can be reassured that EZM has no intention of diluting shareholders further and is looking to finance the project through debt and commercial arrangements with consumers of the Aljustrel product, and some cash flow from operations. Nor are they ruling out the possibility of a partnership on the project - third parties are conducting due diligence.
With 518 mil shares outstanding and 563 fully diluted, some shareholders believe that a rollback would be in everyone's best interest. The company doesn't really believe that a reverse split would add value, but plans to list on AMEX at some point, with a view to tapping into the deep and broad southerly retail market.
With a continually improving balance sheet and the prospect of new production, it looks to us as though EZM shares have some meaningful upside. The company should also benefit from copper and zinc markets that are likely to remain tight for the foreseeable future.
EuroZinc Mining closed Wednesday up two pennies at C$66c.