Ann: High Grade Hits in Oposura Central Zone, page-23

Financiers, as always, will weigh up risk v return. I agree zn price in the forward years will be the key determinant of project fundamentals, but zn price over next 12m will determine extent of equity dilution. This is obvious. If you can’t see it I’ll not bother to explain in more detail

As for Zn, the 2017 bull run was fuelled by a narrative of structural supply deficit, and to a large extent prevailing market views were founded on rapidly dwindling LME stockpile inventories.

In 2018, inventories have been more volatile. Zn is the worst performing of all metals so far this year. I think market has cottoned onto the fact that certain big market players (such as Glencore) manipulate stockpile vols to drive up prices.

Apart from the stockpile figures (which the market now seems to ignore), there’s an abundance of new zn supply gushing into world markets over the next 12-18 months.

Macquarie bank refers to this as the next chapter of the zinc narrative, in which investment occurring in response to high prices of 2017 begins to translate into new supply. This will be increasingly factored into commodity price and is already reflected in futures settlements

The demand side has not been a driver for zn, but in my opinion the trade war, China slowdown and strengthening usd will complicate and undermine the zn story further. I think there will be strengthening macroeconomic headwinds over the next several years that will be unfavourable to zinc

Don’t misunderstand me, zn has already been pushed down a long way, and I don’t see a collapse in price anytime soon. But I do see the potential for further weakness, or for it to languish around or slightly below the current price.

As for assumptions in the study. I suppose you’re wondering why there was such a tepid market response to the ann? It’s because the model was based on ridiculous and hopelessly optimistic price assumptions. The project is marginal & risky & unlikely to be value accretive imo

I suppose you could view azs as a leveraged gamble on a zn price recovery, but even then I’d suggest there are stocks out there with a far more atttactive r v r profile, and less risk of massive imminent equity dilution

Do what you will though, I’m definitely not trying to change your mind. I’ll continue to follow the azs story and promise to check in periodically to comment on the share price and company performance