Zinifex Ltd (ZFX) Share Trading Recommendation

Submitted by Craig Strzelecki on 9 February, 2007 - 22:02

Zinifex (ZFX) have a downgraded FY07 estimate from analyst Citigroup Investment Research (CIR). They have downgraded their FY07 estimate by 9% to A$1.58b driven by lower 1H07 zinc prices, down 14% to US$1.72¢/lb, CIR have also lowered their 2H dividend to A$1.10, previously A$1.50/share. Despite the downgrade, Zinifex remains their preferred base metal exposure driven by a zinc market deficit & higher 2H07 zinc prices, smelter spin-off and exploration. Zinc prices are down ~25% year to date driven by base metal turbulence and a Chinese export driven spike in LME inventories in January. However, LME inventories have since fallen 5% and CIR do not expect China to become a structural net exporter of zinc. CIR forecast another deficit in the zinc market for 2007, with a higher average 2H07 price of US$2/lb. There is risk to Century production from loss of the cyclone damaged transfer vessel that is critical to the pipeline/port transport system. Damage and ability to secure a replacement vessel are being assessed, but Century can operate until end February, and smelters end March, based on stockpile capacity and inventories. A week's lost production is ~10kt of zinc. Regulatory approvals and due diligence are progressing for the signing of a binding agreement in 1H, for execution in the 2H, for the proposed smelter spin-off with Umicore. If CIR were to apportion their FY07 and FY08 Zinifex estimate between the “mining” and “smelting” assets based on EAT and EBITDA contribution, and then put the two components on peer group multiples, it would imply a share price for Zinifex of A$18-22/share.

Zinifex Limited is listed on the Australian Stock Exchange (ASX) under stock code ZFX. You can view their investor website here. ZFX was listed on the ASX on 5 April, 2004. Zinifex owns and operates two mines in Australia and four smelters: two in Australia, one in the United States and the other in the Netherlands. Greig Gailey is the CEO of Zinifex and the Chairman is Peter Mansell. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ZFX. Check your charts and good luck with your share trading!