Consolidated Zinc Limited: New Processing Plant the First Step to Unlocking Value

Business model
Consolidated Zinc is a junior minerals company with current production and cashflow from its 100% owned Plomosas mine located in Mexico and holding significant exploration tenements around the highly prospective Santa Eulalia mining district. The company’s strategic plan to optimise economic returns at Plomosas through debottlenecking run of mine operations and producing concentrates through its purpose-built processing plant.

First concentrates produced...it should all ramp up from here
As an important first step, CZL has delivered first zinc and lead concentrates from its newly commissioned processing plant, which was completed within budget and close to the expected timing. This now closes the loop with the company having “...full control over both the mining and processing functions for the first time”.

From this point on the Plomosas financials should better reflect the economic opportunity afforded by its high-grade ore in an environment of improving margins on strong metals pricing and falling costs. We note CZL will benefit from recently announced reductions in treatment charges (c.47% lower) as costs ‘normalise’ in a post-COVID world.

Operating its own processing plant and retaining the contract option should result in the company reducing ROM stockpiles of around 3 kt, over the course of 2021. We would also highlight the expansion potential of the project as the company aims to deliver operating rates of 200tpd, perhaps by the end of 2021.

Valuation
We model a risked valuation of A$34mn (A$0.12/share) to the asset base against a reference share price of A$0.05/share and highlight the strong NAV to share price premium (>250%) likely reflecting investment uncertainty over the macro economic environment and delivery of improved Plomosas performance. It’s worth highlighting we have been conservative in our model assumptions on both operating and metals pricing and note in our opinion strong upside risk to forecasts. For further detail, refer to our recent initiation report Set to benefit from post-COVID growth.