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New Century Resources - Fully funded as first production draws closer

May 2018

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Summary - Fully funded as first production draws closer

New Century Resources (ASX:NCZ)  announced a $40 million capital-raising, as well as securement of a US$15 million working capital facility, meaning the company is fully funded to recommence production at its Century zinc operation in Queensland. Other recent highlights include the following.

  • $40 million underwritten placement at $1.15/share (Credit Suisse Australia). 
  • US$15 million unsecured working-capital facility (associated with zinc concentrate offtake) from MRI Trading AG.
  • Termination of US$45 million debt facility to be provided by Sprott.
  • First production still on track for 3Q18.
  • Exploration – 2,500-metre exploration drilling programme and >100-line-kilometre induced polarisation (IP) survey currently underway at Century zinc mine.

Analyst comment: the advantages and disadvantages of debt and equity are well documented and, while increased dilution has reduced our valuation (see below), the benefits of greater flexibility for New Century, especially as first production draws closer, are more advantageous in both the short and long term.

Reading between the lines, it appears that one of those benefits is that associated with hedging. Typically, a debt provider also provides any hedging required. Given the significant increase in the zinc price over the past 12 months, it’s probable that the pricing of different hedge providers will vary significantly.  

By removing the requirement for a debt facility, New Century now has the option of running a competitive process for both currency and zinc hedging, with the former remaining on a near-decade-long high. We look forward to receiving further information on potential hedging in the coming months.

Exploration: while New Century and the markets continue to focus, rightly, on recommencement of production, implementation of the first exploration programme at Century quietly slipped under the radar. 

In our opinion, the region is the most prospective zinc exploration ground in Australia, and remains largely under-explored given the previous owners targeted only areas which were potentially of the same size as the historic Big Zinc deposit.    

A key part of New Century exploration strategy includes the use of IP (a geophysical  technique). It’s a method not previously used at the Century project, despite the company completing a case study illustrating that mineralisation associated with that ore body responded to it well. Given that New Century plans to incorporate hard-rock operations into activities in the near future, any new discovery will increase the mine life and thus our valuation. We anticipate that initial exploration results will filter through in the coming months. 

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions. 

Valuation: we decreased our valuation to $3.32/share (previous $3.61), due primarily to increased dilution as a result of the recent capital-raising.