Prairie Downs Metals (PDZ) - Base Metals Minnow

[Huang Chung]

Zinc price still under sliding pressures

Spurred by overall rebound of the metals market and no adjustment to the tariffs on export of high-grade zinc, zinc price in China rebounded in late December and early January, but analysts hold that the price movement may resume the declining trend again under multiple unfavorable factors.
According to monitoring by the Chinese Ministry of Commerce, the average spot price of No.1 zinc in China was about 19,115 yuan per ton in the later half of December, up 1.9 percent over that in the first half of the month. The rebound was also reflected in zinc futures traded on the Shanghai Futures Exchange.
Zinc futures price on the Shanghai Futures Exchange plunged by more than 30 percent from mid-October to the first half of December.
Despite the recent rebound, zinc price still faces sliding pressures, analysts say.
On the supply side, global zinc supply tends to be excessive after quick capacity expansion. Domestically, the zinc output is keeping fast growth, up 18.9 percent year on year to reach 3.395 million tons in the first 11 months of 2007. As new capacities under construction are yet to be released, fast growth of domestic zinc production is still expected in 2008.
On the demand side, the growth of domestic demand for metals is beginning to slow down. Official data show that the growth rate in value added of the industry declined for the second consecutive month in November. Under macroeconomic control, the industrial growth may slow down further in 2008, which in turn will lead to slowdown of metals demand.
Meanwhile, zinc inventory on the Shanghai Futures Exchange was about 54,000 tons by Jan. 4, the highest level since launch of the zinc futures contracts on the exchange. – China Mining

My broker was telling me that after speaking to some industry people earlier today, that some of the higher cost zinc operations in Oz might be pretty marginal propositions if the price of zinc slides much further.

Happy to just stick with PDZ, and its low, low, market cap.

[FarmerGeorge]

It is, of course, worth considering the impact of a zinc price decline but I'm dubious about a sustainable sub-95c/lb Zn price for exactly the reason you point out HC. There is also a large demand still for iron ore for steel. That steel will have to be galvanised by something and I'm inclined to be less pessimistic about zinc overall, and I believe PDZ will be a low cost producer going forward.
I thought PDZ was undervalued at $1.30 and at current levels (90c or so?) I think it will look like a steal once the estimate arrives in February. Obviously it would be nice to still be sitting with it at around $1.35 as it was but I'm ok with a bit of a wait. My feeling is that at current market cap. this should be more of a value story than one tied to the zinc price. Haven't sold yet, maybe I'm just deluded.

[FarmerGeorge]

I may well be maintaining my delusion here but I picked up another chunk of the options yesterday and this morning. Current market cap vs value of current resource seems a bit ridiculous, plus I am optimistic about further upgrades to the resource in the next month or so. Time, of course, will tell on this one but, for better or worse, I've pretty much tied my portfolio's performance in '08 to Prairie Downs.
Tricha, HC, anyone still around?

[Huang Chung]

Hi Farmer George.

Well done on picking up some cheap stock.

Nice gain today on the heads, but on tiny volume...just like the sell down.

I was not in a position to pick up more stock this time around unfortunately.

[Huang Chung]

Nice line in PDZ's quarterly released today....

'The updated resource is due in mid-February. Current indications are that grade will be extremely competitive'.

Only 52 million shares and 21 million options.....

[FarmerGeorge]

Latest report is also very encouraging. I am thinking we might be seeing some good news come February. Would be a nice change in pace from the last few weeks!

[Huang Chung]

Agree FG, PDZ is looking good.

Did you notice the little headframe and shaft drawn in on the schematic cross section? Don't want to read too much into it at this stage, but I'd like to think that management are becoming more confident that this deposit will extend to some depth.

Next week should give us the revised resource statement. I'd be one very happy chappie if we got a 10/10 result (10 million tonnes grading 10% zinc eq), as the global resource, but think that is too big an ask at this stage. I'm fairly confident that the high grade subset should will in at better than 10% zn eq, but the 'x' factor will likely be the tonnage.

Exciting times ahead.

[FarmerGeorge]

PDZ announcement today nothing to set the world on fire. Resource worth about AUD$1b, PDZ Market Cap about 47m so I'll maintain that they're under valued but it would have been nice to see a bigger resource. The 'high grade' zone is the major positive, with a good increase in grade, and a small increase in tonnage but overall I was expecting a bit more. I hope all that talk of 'tonnage expected to increase substantially' is more than just wishful thinking!

[njat]

I am new to this thread but have been following it for a long time and have been reassured by the opptomism as it mirrored my own about PDZ and hence the large holding I have in them. I fell somewhat dispapointed by this announcment as the indication seemed to be a much bigger resource would be announced. I sold half my holding when they were trading at $1.33 but bought in again when they slumped to mid sixties, but am wondering now if that was a good idea and if they are all hype with not much substance, but maybe thats a bit harsh?

[Huang Chung]

Njat, FG. I was also a bit deflated by the tonnage announced yesterday. Their presentation still points to 10 million tonnes or greater....lets hope this is based more on sound geological interpretation rather than blind hope.

Interestingly, only a small sell down yesterday, and a bit of a bounce back today. Nobody seems to be getting to hot and sweaty about the results.

Awaiting further developments with interest.