Originally posted by Mossberg
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
zn price over next 12m will determine extent of equity dilution.
I'm talking about the feasibility of the entire project which you are very sceptical about and throw out all manner of spokes in the wheel. Like a side issue like bluddy equity dilution which you raise and leave hanging, like so many of your supposedly big issues.
I've asked you this KEY question on the outlook for zinc many times and you've dodged it each time and it's been like pulling out teeth trying to get it out of you.
Last time you breezily talked about spot prices instead. It didn't work. Others picked up on the disingenuity.
Clearly the barrage of background information shows that you prioritise in an interesting way from the range of information that's available out there, and summarise interestingly as well.
For instance this gem:
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
So you base your adverse view of AZS on your own personal view of how the trade dispute with China will work out? OK. At least we know what's going on behind the curtains then.
You mention the trade war as key to overriding underlying demand. You won't spell it out, but absent the trade war, IMO that demand is likely to be high.
Overall you have to ask yourself
what the likely outcome will be. All the rest is fear and noise.
IMO all the indicators are that the trade war is affecting China far more adversely than the US which has a colossal domestic consumer economy with internal momentum and other export markets.
The domestic economy implications in China (with slowdowns and stoppages from major steelworks) has become so dire that the Chinese have started giving indications of a shift of position from more aggressive international stance, to a much more moderate one such as (the late) Deng used. Deng's son is following along those lines and is emerging as a powerbroker. Xi has tried to establish himself as in power indefinitely but internal dissent from those like Deng's son particularly over the trade war is making that less likely.
Frankly Xi's got egg on his face over his aggressive style and you cannot have colossal upheaval internally in China including displacement of workers without political repercussions.
It all could be over very quickly indeed. In fact Trump and Xi are due to meet soon at a G20 meeting.
The pressure is on Xi. It's not on Trump.
Strengthening USD can be good if you're selling commodities in US currency. Not so great for buyers but it also comes down to quality products. China produces plenty of inferior steel but the very high quality stuff tends to be produced elsewhere and they need that market. China is scrambling right now on several fronts. They're also struggling to stablise and control their secondary lending markets. But this is a colossal digression isn't it? It seems you read what some pundits have to say and repeat it. With not much analysis of your own. The economic analysts aren't always alert to the political context and in this case it shows.
So taking the trade war off the table, (which to you seems unimaginable whereas I think it will resolve much more rapidly than you imagine because the push factor is China and they're screaming in pain right now just trying to put on a brave face)....
.how is the outlook for zinc?
Don't want to be drawn on this? I quite understand!
Finally I'm amazed you devote so much attention to AZS as you keep reiterating that so many other stocks are much more worthy of attention. There's a dissonance with what you say and the astute will be picking up on that.
