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New Century Resources - Ticking the boxes towards first production

Mar 2018

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Summary - Ticking the boxes towards first production

New Century Resources (ASX:NCZ) has in recent months released a number of key announcements as it moves towards production at its Century zinc operation in Queensland by 3Q 2018. Highlights of those announcements include the following.

  • Consolidation of Century Mine ownership – now 100%.
  • Commitments in place for around 65% of offtake during the first 2 years of production, with further agreements past year 5 of production.
  • Binding term sheet for new 5.5-year offtake agreement covering 600,000 dry metric tonnes (dmt) of zinc concentrate results in Nyrstar suspending arbitration proceedings.
  • Long-term agreement with Santos for supply of around 9 petajoules (PJ) of gas over 4 years (contract value in the order of AU$100 million). 
  • Selection of mining contractor National Pump & Energy Ltd, partnered with Paragon Tailings Pty Ltd, as preferred providers for Century tailings deposit operation.
  • Appointment of a number of high-calibre personnel.

Analyst comment: as outlined above, NCZ is moving towards first zinc production by mid-year, having executed numerous agreements during the past month, and continues to strengthen its board and management team. 

While each announcement has been meaningful, the Nyrstar offtake agreement, which also resulted in the end of arbitration proceedings between the groups, was important, as it eliminated uncertainty for investors with respect to potentially drawn out and costly legal proceedings. We believe this should lead to finalisation of the limited amount of outstanding offtake to be committed to in the coming months.  

Surprisingly, the announcement that seemed to resonate most with investors was the $100 million gas supply agreement with Santos. While the contract was important (it ensures lower long-term power costs when compared to alternative options), we believe it was Santos’ calibre as a partner, not to mention the contract’s size, that encouraged the ‘penny’ – i.e. NCZ will become a major zinc producer globally – to drop in the minds of many investors. 

Valuation: we maintain our valuation to $3.61/share (share price $1.31).