Zinc majors need good advanced assets – but such projects are very scarce. With South32 taking out Arizona Mining for $1.8 billion earlier this week, Fireweed Zinc (TSXV: FWZ) now has the largest high-grade zinc deposit in the junior markets. And a new PEA shows the deposit could already support a profitable, long-lived mine.
Fireweed is a clear standout in today’s zinc bull market…and yet shares are available right now at a discount.
A February financing is about to come free trading and associated selling has pushed the price down 25%. That has created a great entry point for those who like zinc and don’t already own FWZ – shares are on sale and summer exploration results, of the kind that prompted Fireweed to more than double last fall, are about to start coming in.
Base metals are outperforming in the metals space. And for good reason: both copper and zinc are looking at significant supply shortages in only a few years.
And the market is responding now.
The price of zinc is already up 140% in two years, but the zinc bull market is just getting started. Prices need to stay at or above these levels for it to make sense for miners to build new zinc mines. But new zinc mines are exactly what we need. Supply just barely keeps up with demand for the next few years and then fails.
Zinc supplies are especially short because zinc prices have been weak for decades. When a metal isn’t worth much explorers don’t bother with it, which is why there are very few good advanced zinc projects out there.
The few that do exist will get bought or built. The fundamentals simply say so. Just on Monday South32 spent $1.8 billion to buy Arizona Mining for its Taylor project, one of the very few advanced zinc assets out there. South32 paid a 50% premium over market to get the deal done. That’s the kind of interest zinc is attracting today.
And right now there’s an opportunity to buy into a stock with another of those rare projects – at a discount.
Fireweed Zinc (TSXV: FWZ) is only a year old. The company came together because an astute group of geologists and mining entrepreneurs acted on the opportunity of a nascent zinc bull market.
Key to their success: they knew the market would want advanced zinc projects, not early-stage assets. So they started to search. And through the kind of connections that only decades of exploration and mining experience can create, they found the perfect asset in HudBay Mining’s portfolio – and convinced the major to sell it to them.
That was a year ago – and they have made incredibly good use of the last year. The MacMillan Pass project came to Fireweed with an historic resource. It now not only has a modern resource but one that’s 70% bigger after just one well-designed drill program.
This team isn’t content to just build pounds in the ground; they need to demonstrate that this project makes sense as a mine. After all, it is new mines that the zinc market needs, not trapped deposits. So they immediately wrapped a preliminary mine plan around the resource – and in doing so demonstrated that MacMillan Pass already has what it takes to be built into a profitable mine.
All this when Fireweed has only had one season on site.
The market has taken note of Fireweed’s accomplishments. The stock IPO’d at $0.50 but the carefully constructed share structure meant it really came out the gate at about $0.90. It drifted down to $0.70 before field results started to flow…and then ascended steadily to $1.80. When the PEA came out, the stock hit $2.10.
That FWZ has done well to date is a good thing. Its gains are clear proof that the market is really keen for solid zinc stocks.
But today FWZ is available for $1.50 again. Why? Because in February the company raised $12.5 million. The financing shares were priced at $1.32 and those shares are about to come free trading.
Shares bought in a financing are restricted for four months. Those who participated in the financing can’t sell their shares until those four months are past. If the stock is up 60% from the financing price – no matter, the financing shares are under lock and key.
Hold periods certainly help stabilize stocks after financings, but the challenge is that four months later a whack of investors – who all have the same cost base – are suddenly allowed to trade. If the stock is way up, selling is guaranteed. Highly engaged investors will start short selling their stock two weeks ahead of the free trade date, to get their positions off before everyone else.
And that is exactly what we’re seeing with Fireweed right now.
I should note: a dedicated resource fund took down almost half of the financing. The 4 million shares that Resource Capital Funds bought are not coming up for sale, guaranteed – RCF’s vision is much bigger than four months and a few percent. And Fireweed exercised as much care as possible in placing the rest of the shares and did not include a warrant. But no matter the care and despite the lack of warrant, selling will always happen.
Anyone selling financing shares now at $1.50 for a 13% gain is giving away good odds of much bigger gains – giving them to you, if you take advantage of this window of weakness and buy.
Zinc is a strong market that will stay strong for a good time. MacMillan Pass is a standout project in the zinc space for its advanced stage, demonstrated economics, and significant exploration potential. Having proven that the project is already economic, Fireweed is heading to MacMillan Pass now for a drill program with two goals: make the known deposits better and find additional deposits.
FWZ shares are very likely to rebound once the free trade date – June 26th – is past. Soon after, news from the field will start to flow. Success either finding more high grade within the known deposits or discovering additional deposits will only amp things up from there.
If you like zinc and don’t own FWZ, now is a very good opportunity to enter.
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