Consolidated Zinc Limited: Q3 Results Point to the Growth Ahead

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. We note the company is progressing exploration activity on trend from its current operations. The company’s strategic plan is to optimise economic returns at Plomosas through debottlenecking run-of-mine operations and producing concentrates through its purpose- built processing plant.

On top of commissioning issues and looking for a bigger Q4
With 2021 regarded as a commissioning and transition year, the remainder of the year will be setting up 2022 as the year of growth. Mine and processing rates lifted significantly through Q3 and management expects the Plomosas plant to be operating at 150tpd by the end of the year. October rates of ~135tpd suggest this should be a low-risk target. As operating efficiencies improve so should follow operating margins, which should be considered around cash neutral at this time and perhaps a base-case indicator. Realised Zn prices remain strong ($1.35/lb) and stronger current operating metrics underpin the financial opportunity that can be unlocked from higher output on the commencement of the growth phase through delivery of the organic growth strategy. The macro environment remains supportive with Zn futures trading around $1.55/lb ($3,400/t). The next 12 months should also see an increased focus on the exploration opportunities along trend to the north-west of the mine and in particular the Mina Mexico Prospect, where historical mining data points to high-grade Zn opportunities. Management could begin a drilling campaign by the end of 2021 or early 2022. A success case provides opportunities and options for a material extension of expansion of operations. 2022 is shaping as a big year for CZL.