Kagara Zinc (KZL) Update

Submitted by Craig Strzelecki on 23 May, 2007 - 20:45

Kagara Zinc (KZL) has a maintained Outperform recommendation and an upgraded share price target of $8 from sharemarket analyst Macquarie Research Equities. The company is their preferred small copper/zinc play (Oxiana is at the big end) given the quality exposure offered to polymetallic assets (operating and development). Pricey short-term multiples must be weighed against a strong organic growth pipeline and significant exploration prospectivity. Kagara Zinc (KZL) staged an impressive 9% rally yesterday after releasing highly promising initial drilling results on their Red Dome gold-copper-silver-molybdenum deposit in the Chillagoe region. The analysts and investors it seems, view these as excellent results and highlight the extensive exploration potential of KZL's asset suite. With strong copper/zinc production growth combined with aggressive drilling campaigns across the Chillagoe region, Forrestania and Admiral Bay, they have upgraded their target price for KZL and claim it as their top pick of the small copper/zinc miners. Reinforcing the view: All things considered, these are excellent results for the gold/copper space, and highlight (yet again) the extensive exploration potential of KZL's asset suite. Underlying discovery value is inherently intangible until it is delivered – these results further affirm the analysts' long-standing belief that Kagara Zinc will continue to progressively add significant value through targeted and development-oriented drilling programs. The significance: The Red Dome results certainly amplify the potential for a bulk mining, 'Ridgeway-style' development (Newcrest’s world-class underground gold/copper mine in the Cadia Valley) encompassing the gold/copper porphyry ores at Red Dome, and the nearby Mungana. As such, accelerated exploration of Red Dome is set to be undertaken by KZL with a view to more precise delineation and possible fast-tracking of such a project. The analystsb currently ascribe no direct value in their Kagara Zinc valuation to the Red Dome deposit or a major gold/copper project development in the Chillagoe region. Copper leverage: With the ramp-up of the Thalanga project, the analysts estimates copper should contribute ~70% of KZL's EBITDA in FY08. The analyst believe the market's increasing realisation of this elevated copper leverage may also drive a progressive re-rating of the stock, given the greater perceived comfort of investors towards the copper market outlook versus the zinc one.

Kagara Zinc Limited is listed on the Australian Stock Exchange (ASX) under stock code KZL. You can view their investor website here. KZL was listed on the ASX on 22 December, 1999. Kim Robinson is the Chairman for Kagara Zinc and the Directors are John Linley and Joseph A Treacy. Kagara Zinc is involved in zinc exploration and mining; the company had acquired and developed a package of zinc sulphide deposits in the Mt Garnet-Chillagoe area in North Queensland. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade KZL. Browse for Australian stockbroker recommendations. Check your charts and good luck with your share trading!