Aurelia Metals Stock Analysis – a Bet on Exploration Going Well For Now!


  • Australian miner producing gold but exploring zinc and lead
  • Net cash position but with short mine live (4 years)
  • However, great new exploration intersections counter the low reserves
  • I conclude by putting Aurelia into a global mining investing perspective


Company overview

Current operations



 Company overview

Aurelia Metals is an Australian miner that produces mostly gold for now but has exploration interest with zinc and lead. It has a net cash position. When it comes to whatever related to investing, the key differentiator between the bad and the good is always cash. However, let’s dig deeper. (Slides source: Aurelia)

1 aurelia

They own and operate gold, zinc, copper and lead mines.

2 gold zinc led copper

They expect 115 to 130 thousand gold ounces of production with costs of A$1,000 ($720) and what is very important, they expect to spend between $35 and $48 million on growth. Growth spending is always uncertain. This leaves about $35 million of operating cash flows. After taxes and other general expenses, there will not be much left.

4 mine life

The mine life is just 4 years.

The short mine life is forcing the company to invest heavily into exploration, which when it comes to Australia, usually means deeper and more expensive. Most of their targets are previously mined mines that are open at depth. As for the surface prospects, keep in mind that only 1 in 3000 surface prospects eventually becomes a mine.

Plus, the ore grades of the current resources are significantly lower than those of the reserves. This means that to turn the resources into reserves, one should see much higher metal prices.

5 resources

6 reservesThe short mine life and lower grade resources lead me to believe, it all depends on exploration with Aurelia. And when the exploration is deeper, it also means more expensive. Before looking at their exploration efforts more in depth, let’s look at the current operations.

Current operations

Mining costs are going up as they go deeper. One should now look at the sequence of the ore they will mine in the future. The volatile costs increase the uncertainty as we don’t know what to expect next qua costs.

8 mining costs

Further, the exploration results are mixed, 7 meters of copper at 1%? Nevsun at Timok had interceptions of 700 meters above 1% copper.

9 exploration

The following slide shows how complex is what they are doing. I would call it ‘deep and thin’.

10 nymeegee

However, their recent update shows nice and significant zinc and lead intersections. But, now the company depends on the price of zinc going forward and you can read my analysis of the zinc sector here.

12 new exploration

The most recent exploration data shown above includes pretty good intersections but we are still talking about a few trucks of ore.

13 herea

Plus, more drilling needs to be done to bring this to reserve level. The management will do that but then again, it will further depend on the price of zinc and lead and more future exploration.


When it comes to fundamentals, they are showing a net cash position of A$105 million, but they have also raised equity for the same amount in the year and a half.

7 equity

Book value is A$0.27 per share. Cash flows have been high in the last reported year but most of that went for the acquisition, growth and exploration.


Aurelia is a small, underground junior miner and you never know what can happen there. The intersections are not stellar, definitely not large, and not something that would make me say WOW. It is simply to risky for any kind of investment in my opinion, like most junior miners are.

When it comes to investing in miners, given the market’s volatility, you can often by what is there at a discount and get what might be there for free. With Aurelia, you are, at the current market capitalization, paying for what might be there, which is something I am not comfortable with. To each his own personal strategy.

However, given the low coverage junior miners have, one has to simply keep digging until you find the miner with great intersections, high potential and low risk. Sounds impossible, but that is what I am looking and I find it here and there. As for Aurelia, it simply doesn’t fit the description unfortunately.

For current Aurelia investors, the market cap is A$795 million and even if they continue to make $150 million in free cash flow over the next 4 years, what is included in the reserves, the reserves don’t cover for the price. So, as it is the case with many miners, it is a bet on exploration and prices. Good luck!

Sven Carlin is an independent stock market researcher running the Sven Carlin Stock Market Research Platform.

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Zinc Stocks List and Sector Analysis


Zinc and copper are in a similar situation, low commodity prices over the last few years have put off investments, limiting future supply growth, while demand kept slowly growing. Consequently, a big supply gap is expected to open sometime over the next decade. However, a likely recession or global economic slowdown, as we are in the late part of the short term cycle, would severely hit commodity markets and zinc miners.

The best investment approach one can take in such a situation is to go through each potential investment, make earnings models, estimate the miner’s strength and survival potential in a bad environment and find good management.


One of the sectors I understand pretty well is the zinc sector. Some of you may remember how I was pretty bullish on Nevsun Resources (NSUin the past, which is a zinc related investment.

I’ve been very bullish on zinc when the price was lowerm two to three years ago. It has all the same characteristics as other base metals; cyclic supply and demand that is relatively easy to forecast with huge and fast market sentiment changes due to the short term investors’ orientation.

If there is no immediate boom potential in a mining sector, it usually gets shunned, the first sales create a self-reinforcing cycle that negatively reflects on all related equities. However, that can only go up to a point. Having first a helicopter view on the sector and consequently a bottom up view on the investment opportunities helps in finding value at the bottom, if there will be any, and taking advantage of the next positive sentiment boom, which always comes. In this article, I’ll share my zinc knowledge, systematize it, hopefully find some stocks to follow and take advantage of the low prices when the right time comes. A big warning before we start: you have to expect huge volatility with zinc miners and therefore possible trading with a margin of safety.

Zinc as a metal

The major application for zinc is corrosion-resistant zinc plating of iron (hot-dip galvanizing). Other applications are in electrical batteries, small non-structural castings, and alloys such as brass.

Investing in zinc – supply, demand and price

Zinc has a strong correlation with the global economy, especially economic development in China. More growth equals to more building, more requirement for steel and consequently for zinc. Further, if there will be increased demand for zinc batteries, demand for zinc might pent up even more. At the end, for investing purposes, it all boils down to:

  • Mining costs
  • Reserve size
  • Demand and supply
  • Other risks (jurisdiction)
  • Financing and debt
  • Sentiment
  • Management integrity and quality
  • Margin of safety and value

One can find irrationality in the above, so let’s see whether there is irrationality in the zinc sector.

1 zinc price

Source: Infomine

Zinc prices tripled over the last two decades due to increased demand from China, like it has been the case for most commodities. Also, a high degree of volatility is common. Zinc reached a high of $1.6 last year while it reached a low of $0.61 a few years ago.2 zinc price

Source: Infomine

Past prices don’t mean that much, we have to see what are the minimum prices related to production costs, supply and demand. Current prices are still high, and relatively stable. However, prices of zinc mining stocks have plummeted.

3 zinc related miners

Source: Bloomberg

The bad performance is because markets always project what is ahead. Both Dalio and Klarman have been warning us about a slowdown in 2019/2020. A global economic slowdown will inevitably hit zinc prices and consequently stock prices. However, investing in zinc is about seeing what is beyond 2020 and then correctly timing it. A margin of safety in the form of long term value is something that always helps.

Let’s first see about the short- and long-term outlook.

Short term outlook for zinc

A good way to check the fundamentals of a base metal is to look at the inventories with the London Metal Exchange. There is more zinc around the world within the so called ‘hidden inventories’, but the LME gives a good indication of the general trend and situation. Hidden inventories usually move in sync with LME warehouse levels.

4 lme levels

Source: LME

It is very interesting how the cycle works; at the end of the previous cycle in 2007, inventories were very low, as those were in 2000. Low inventories, high prices, lead to heavy investments, that in combination with declining demand due to recessions, creates high levels of inventories that take a while to be consumed.

The above chart shows how we are again at the end of the zinc cycle.

The International Lead and Zinc Study Group (ILZSG) forecasts that zinc supply will grow 6.4% in 2019 while demand is expected to grow only 1%, but they still expect a deficit of 74,000 tons which is much less than the deficit of 322,000 tons in 2018. Mines ramping up in 2019 are Vedanta’s (VEDL) Gamsberg operation in South Africa, MMG’s Dugald River mine, New Century Resource’s Hellyer tailings project, with output to in rise in Cuba, Kazakhstan, Peru, South Africa, Turkey, and the United States.

ILZSG’s report tells me that if there is any kind of slowdown, supply might quickly exceed demand. This would lead to rising inventories and lower zinc prices.

1 zinc price

As it was the case from 1999 to 2003 and 2008 to 2015. This means miners might be looking at a few bad years, if not more, depending on global economic growth. The key is to buy value at the point of maximum pessimism.

In general, I would say there is a big investing opportunity once every decade; 2016, 2007, 1994, and there are a few small opportunities two times a decade, 2014, 2011, 2009, 1997, 1991. Such volatility, long periods of low prices and oversupply, high correlation to the economy and all that goes along with a risky sector like mining is, puts off many investors. A contrarian attitude is key and the easiest way to have such a behavior is to have a margin of safety, preferably in the form of cash and cash flows.

The long term outlook

The long-term outlook is not a linear one, but definitely a growth one. The zinc market will grow alongside economic growth and might have a boost thanks to batteries and increased galvanization, that usually increases as economies develop.

5 ,etal usage

Source: ILSZG

Also, things might be different for zinc when the next recession comes. Due to low prices, that put off investments, there might be a structural deficit ahead. This means that even with a recession, demand might outstrip supply because there simply aren’t enough projects out there. Same story as with copper, where a structural deficit is expected to emerge in the next decade.

6 zinc gap

Source: Teck

It also depends on what kind of a recession will we see next, one with India and China still growing or one with big issues there? For investing purposes, it is really important to time this well. For us investors, whether the supply gap open in 2020 or in 2023 makes a big difference.

Time to look at the details.

Cost curve, prices, expectations

When it comes to costs and prices, the marginal producer is usually the one that sets the price. As the price depends on the marginal producer, it results in high volatility if there is oversupply or high demand. However, 97% of miners are cash flow neutral or positive with zinc at $1 per pound. In 2016, with oversupply, prices quickly went to $0.6 where only 75% of producers have positive cash flows.

7 zinc curve

Source: TECK

When you add the sustaining costs, still 85% of the population is profitable at zinc $1, that again means many can sustain production at lower prices. So, if we hit a downturn, one can really expect zinc prices to go below $0.8, but not much lower as I don’t believe such an equilibrium could last for longer.

Therefore, my calculation for a margin of safety zinc price is $0.8 per pound. The key is to find stocks that offer value even with such a low price. If you find something like that, whatever happens with the market, you will be fine. Also, one should always keep the debt in mind, something usually not included in the reported mining costs.

Another thing to keep in mind is that there aren’t many pure zinc miners, so there is another possibility to take advantage of irrationality, but you have to also analyze all the other operations a miner has, which is a lot of work. For example, Teck’s investor presentation deck has 178 slides.

8 zinc miners

Source: TECK

Zinc miners list – which one is a buy?

Altius Minerals Corp [TSX:CN] (ATUSF),

AngloAmerican [LN: AAL], (AAUKF),

Arizona Mining [TSX:AZ] (WLDVF),

Canadian Zinc Metals [TSXV: CZX] (CZXMF),

Darnley Bay [TSXV: DBL],

Glencore [LN: GLEN] (GLNCY),

Heron Resources [TSX: HER] (HRLDF),

Ironbark Zinc [ASX: IBG] (IRBGY),

Independence Group [ASX: IGO],

Lundin Mining [TSX: LUN] (LUNMF),

Metalicity (ASX: MCT),

MMG limited (HK:1208),

Nevsun Resources [TSX: NSU] (NSU),

New Century Resources (ASX: NCZ),

OZ Minerals (ASX: OZL),

Solitario Exploration & Royalty Corp [TSX: SLR) (XPL),

South32 [ASX: S32] [LN: S32],

Trevali Mining (TSE: TV) (TREVF),

Tinka Resources (TKRFF),

Vedanta (VDNRF),

Zinc One (ZZZOF).

Which one is a buy? Well, give me some time to go through the complete list, make earnings models, estimate intrinsic values through cycles, look at all other potential risks and see about the investing risk and reward. Then, we will see what stocks to cover and possibly invest when there is an opportunity to invest with a margin of safety. I am willing to even wait 10 years to do that but you never know given the market’s volatility.

About the author: Sven Carlin is a full time investor and researcher at Sven Carlin Stock Market Research Platform.

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