How many of the resource stocks in your portfolio have a chart like this the past 6 months?!
Not only was Zenyatta Ventures (ZEN/ZENYF) the best performing stock on the Toronto Stock Exchange last year, but what if I told you the party is just getting started? You can see from the Gold Investment Letter blog that we recommended ZEN to subscribers last April in the .30’s. We also pounded the table to buy shares last August when the stock was under 20 cents briefly and have had a consistent and very bullish message all the way up (we’re up over 1,000% since August-people thought our $2-5 price target was crazy!). Frankly, I think this current chart is now again a screaming buy and looks to me like it’s about ready to take off once again.
Here’s a summary for new investors just now hearing about ZEN. Zenyatta is a graphite exploration company that has had a blockbuster discovery that, we believe, will change the entire landscape of the highest end of the graphite marketplace in the years to come. There is no other public or private company on the planet that has such a large, valuable, and high purity deposit. Zenyatta’s vein type/hydrothermal graphite has been compared only to the vein/lump deposits located in Sri Lanka. However, the Zenyatta Albany deposit in Ontario dwarfs these deposits. I’ve had a crash course in Graphite over the past year and the market is slow to be understood by investors. This has created a huge opportunity for investors/our subscribers as larger investors slowly but surely begin to digest how valuable and special the Zenyatta story is versus other resource plays in the market.
I do not want to get into an introductory piece on the economics of flake versus vein graphite etc in this piece. Much information has become available to investors on this topic and a good place to start is the www.zenyatta.ca website. What is important now is that ZEN has proven they can produce a very high purity (99.96%) end product. Now, the company is aggressively drilling to prove out a 43-101 resource to determine the tonnage that exists at Albany (yes, our numbers on tonnage are still speculative until we have this in hand). They anticipate having an initial resource by August and will move directly into Pre-Feasibility early in 2014. The economics on this project are out of this world! You have an end product that will sell into the higher end of the graphite market at roughly $10,000 per tonne. Typically, the cost to produce such a product is quite expensive. However, in Zenyatta’s case, I am quite confident the cost will be under $1,000 per tonne as the process already shown by SGS Lakefield is quite simple and inexpensive.
We are also confident that ZEN has minimally 20 Million tonnes of hydrothermal graphite in their deposit and likely much more than that. I recently published a special report on Zenyatta walking through the potential valuations Zenyatta should command at 10-20-30 Million tonnes. If you want to absorb the most insightful and advanced research on Zenyatta available anywhere, you are welcome to check out our special report…..the price tag is well worth it for anyone who is a serious investor: http://www.goldinvestmentletter.com/zenyatta-ventures-exclusive-offer/
Here is a glimpse from the report below, including a valuation exercise at 20 Million tonnes:
“Although I plan on giving various scenarios (low-mid-high case projections) to exercise your own judgment of what ZEN should be valued at in the market, I’ll also make a call very clear. I’ll tell you off the bat that I’m raising my intermediate price target (within 12 months) to $5-7 per share up from the initial projection of $2-5. As you’ll see, there is potentially considerable upside even from the new $5-7 range and, therefore, I am putting a long term price target (12-36 months) of $10 per share. Frankly, there is much less risk in this stock now that we have the purity numbers that we were looking for….actually, better than almost imaginable! 99.96% is insane. Not to mention, we believe they will be able to produce an ultra-high purity graphite product for a potentially ridiculous low cost. We’ll get into these economics later but let me just say that it’s conservative to assume that the cost will be less than $1,000 per tonne, and potentially cheaper than that.
5% Grade and 90% recovery rate equals a finished product of 900,000 tonnes
Selling price= $9,000 per tonne
Cost of Production= $1,000 per tonne
Life of mine- 15 years
Tonnes per year sold- 900,000 divided by 15 years= 60,000 tonnes per year (this is less than 5% of the synthetic/high purity graphite market)
Estimated profit per year- pre tax earnings $480,000,000/$345,000,000 after tax earnings
After tax NPV @ 10% discount rate- $2.6 Billion
NPV assuming a $150 Million Capex/mine startup cost= $2.45 Billion
NPV based on 57 Million shares outstanding= $43 per share
Internal Rate of Return= 230%
Clearly, these numbers are incredible! Now, if we simply used a 0% discount to NPV, which would be appropriate as the mine becomes closer to reality, the numbers essentially double to $86 per share NPV. But, let’s use the $43 above and put a 30% discount to NAV as a fair market value and we get…..$13 per share!
Now, once we get down the road and Zenyatta is a play on earnings, can you even comprehend what the market value will be on net income of over $300 Million dollars? 10X earnings is a $3 Billion dollar market cap. At $2 per share currently, using a fully diluted shares outstanding number of 57 million, the market capitalization is less than $120 Million! To get to $3 Billion we are talking about $50 per share. But, for the sake of our long term price target, we’re discounting that analysis by 80% and getting our $10 share price, which is also a 30% discount to NAV we feel will be revealed within 12 months via drilling into a Pre Feasibility Study. Our $5 price target brings us into a very reasonable $250-$300 Million market capitalization range and $7 is still under $500 Million."
So, WOW, huh? This is a very exciting story that is still in the early stages of unfolding. Unbelievably, we have been the only newsletter writer/analyst that has covered Zenyatta during this monster run. That is going to change, I believe, quite swiftly. The economics of this deposit are too magnificent for investors to ignore. Zenyatta is cashed up to the tune of $10 Million plus by June as the rest of their $1 warrants are exercised (currently they have approximately $7 Million in the bank). This means no dilution beyond the warrant conversions in the foreseeable future. I truly believe that with a few more drill hole results, more savvy investors will be putting 2 and 2 together and be able to determine what we already have, that the deposit is huge and will undoubtedly become a very profitable mine.
This market has been brutal for resource stock investors for almost 2 years! Gold/Precious Metals company’s stock prices have been ravaged but Zenyatta has gone up over 10 fold. With our price targets above, there is still 5 bagger upside potential over time and now is a terrific time to be introduced to this story as the stock has built a beautiful new, almost 3 month long, base along around/at its 50 day moving average. It looks like MACD is above to turn positive and because this consolidation has brought RSI down to a very reasonable level, the stock could really boogie when it decides to make the next run.
If your interest has been piqued, feel free to sign up for our free e-letter on our site: www.goldinvestmentletter.com. We also offer a Premium and Elite membership option and if you decide to buy our special report, you get our Premium membership for one year ($367 value) and Elite trial for one quarter ($997 value).
Legal Disclaimer: Eric owns shares in Zenyatta Ventures. Zenyatta Ventures is a sponsor of the Gold Investment Letter. I am offering ideas for your consideration and education. I am not offering financial advice. I am not a financial or investment advisor and am acting in the sole capacity of a newsletter writer. I am a fellow investor and trader sharing his thoughts for educational and informational purposes only. This publication is a 100% subscriber supported. No compensation is received by the author from any of the companies mentioned for the recommendation of a stock in this service(if this changes or there is exception-it will be clearly disclosed to our readers). Opinions and analyses were based on data available to authors of respective essays at the time of writing.
Although the information provided on the Website is based on careful research and sources that are believed to be accurate, Mr. Muschinski does not guarantee the accuracy or thoroughness of the data or information reported. The opinions published on the Website belong to Mr. Muschinski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Muschinski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published on the Website have been prepared for your private use and their sole purpose is to educate readers about various investments. By reading Mr. Muschinski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Muschinski, Gold Investment Letter's employees and affiliates, as well as members of their families, may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer