Ram Resources Keel zinc project provides good exposure to a resilient metal
After emerging as the best performing base metal in calendar year 2016, despite a slightly bumpy start to 2017, zinc remains the best performing base metal on a year-on-year basis with its price having risen nearly 40% from approximately US$0.85 per pound to US$1.17 per pound.
By comparison, after the recent pullback in the nickel price it is close to line ball with where it was 12 months ago, while copper’s current price implies a year-on-year increase of approximately 15%.
The second best performing base metal behind zinc is lead, being the metal that tends to mirror zinc the most in terms of price movements. It is up nearly 30% on a year-on-year basis.
Last week, analysts at Macquarie came out with some positive commentary regarding ‘sharp inventory outflows, mostly from Guangdong (China) warehouses’.
The broker is forecasting a zinc price of US$3100 per tonne by the fourth quarter of 2017 and it expects this level to be maintained in calendar year 2018. This compares with current levels in the vicinity of US$2600 per tonne.
If the second half (2017) surge in the zinc price occurs as it did in 2016, we should again see stocks exposed to the metal rerate strongly, particularly if there is the circa 20% increase implied by Macquarie’s projections.
Is Ram Resources’ three month/60% gain about to be extended?
Shares in Ram Resources (ASX: RMR) soared in February after the company negotiated an agreement to acquire an 80% interest in the Keel zinc project located in Ireland on territory adjacent to a number of the largest zinc producing projects in Europe.
It should be noted that as of Monday, May 8, Ram Resources will be trading under the company name Longford Resources (ASX: LFR).
While LFR’s shares are still up 60% on a three month basis, they have trailed off from a high of 7 cents on March 9 to 4.8 cents.
However, this has been under low volume sporadic selling of less than 500,000 shares a day, unlike the circa 17 million shares that were traded when its share price doubled from 3 cents to 6 cents in a day (February 7) after the Keel deal was announced.
It should be noted here that any broker projections in this report are only estimates and may not be met. Also, share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.
Management announced this week that its drilling program had just commenced with the first seven diamond drill holes aimed at confirming known mineralisation.
LFR is looking to grow and upgrade the current inferred resource of 6.9 million tonnes grading 5.6% zinc and 0.8% lead.
With an established resource under its belt, vast expanses of known mineralisation, and a data bank gleaned from 268 historic drill holes featuring 250 occurrences of zinc grades in excess of 2% across 40,000 metres of ground, LFR has an attractive advantage in terms of establishing a strategically focused drilling campaign.
Consequently, it wouldn’t be surprising to see LFR’s shares recommence their growth trajectory in coming weeks as assay results come to hand and investors gain a feel for the likely quantum and timing of the establishment of a maiden JORC resource which management hopes to achieve by the third quarter of 2017.