NorZinc is at the high end of the Absolute Cost Structure curve and the low end of the Net Profit Margin curve. In other words, Prairie Creek is a Project that will require substantially higher Silver, Lead and Zinc prices in order to be viable.
In a raging silver bull market, we think shares could appreciate by as much as 382%, which assumes shares will trade at approximately 5x future net annual cash flows.
Fahy Capital Management is not an investor in NorZinc.
In Q2, we reduced our exposure to uranium and increased our exposure to gold, silver and agriculture; our allocations to platinum and rare earths remain unchanged.
At Fahy Capital Management, our investment decisions are based upon quantitative data. Analysis of that data enables us to execute in what we perceive to be a timely and prudent manner. When our data suggest the gap between price and value has closed, we sell. This approach ensures that we do not fall in love with a particular idea or stock. We perceive stocks as inventory and we like to see that inventory get worked off.
Over the course of a 12-month time frame, we typically expect inventory to be reduced by as many as 2 or 3 names, and this has proven a rate that allows us to reinvest and grow.
We remain committed to the value proposition, but how we arrive at determinations of value is changing. We have developed new formulas and new ratios that we believe better reveal the merits and shortcomings of businesses under investigation, while conferring to us an edge on the hairy margins.
We are looking forward to sharing some of our results here in our blog. Those results, however, don’t constitute a recommendation to buy or sell; it’s just food-for-thought.
According to our calculations, the AbraPlata story gets interesting above $17/oz. Ag. If Aethon has a breakthrough and is able to demonstrate that recoveries above 80% may be achieved, the AbraPlata story could get interesting below $17/oz. It’s a wait-see.
The Net Profit Margin and Absolute Cost Structure are middling, so we have assigned AbraPlata a 5x Cash Flow Multiple and Future Market Cap Growth up to 4,280%.
Merger Update: 30 July 2019 — Jane pays John to take her to prom…
On a fully-diluted in-the-money basis, AbraPlata shareholders will own ~48% of Diablillos following a business combination with Aethon.
As our assumptions were within a +/- 5% margin of error (+4%) regarding future ownership, our existing valuation dated 20 June 2019 remains valid, for all intents and purposes.