Canada Zinc Metals Inc. (CZX .V) coverage was initiated on April 5th and updated on Sept 2nd. In our last note, we addressed the issue that the company had experienced a significant and lengthy pull back despite being in the midst of a drilling campaign at their Akie location (Cardiac Creek). This seems even more inconsistent as zinc prices were on the rise throughout the drilling campaign.
Indeed, the positive drilling results had some impact of the stock price. However, looking back to a 14 month charts revealed that it was relatively insignificant. At issue, CZX.V has lost considerable valuation in the last 9 months (>30%). What's driving this?
Well, it appears to be related to the way CZX.V conducts its financing. From mid-October 2016 to Mid-March 2016 the stock was trading between $0.37 to $0.42 cents. For the purpose of highlighting our point we will call this time period: "Brokered". From the beginning of April up to now, the stock has been trading between $0.26 to $0.32 cents, let's call this period "Non-Brokered". Here is the chronology of the events:
Nov. 21, 2017 - 2.7M shares were traded that day which represent the highest volume for the past 14 months.
Nov. 23, 2016 - Announced private placement for $5M at $0.40 cents, and a $1M non brokered private placement. Terms: warrant at a price of C$0.55. Note the agents: led by Cormark Securities Inc. on behalf of a syndicate of agents including Echelon Wealth Partners Inc.
Dec. 15, 2016 - Closed $2.8M of $5M private placement announced on Nov. 23, 2016. $1.5M Brokered and $1.3M Non- Brokered.
In essence, the private placement went from an intended $5M down to $2.8M (44%). The brokered portion went from $5M to $1.5M (30%). The non-brokered portion from $1M to $1.3M (130%). The brokered portion was significantly lower and CZX.V was short of $2.2M to meet its needs of $5M...
Apr. 4, 2017 - CZX.V closes at $0.34 cents.
Apr. 5, 2017 - Closes non-brokered flow-through private placement at $0.44 per share to raise gross proceeds of $1,5M.
Apr. 11, 2017 - CZX.V closes at $0.30 cents.
Apr. 12, 2017 - Closes non-brokered-private-placement of $0.45M at $0.35 per Unit. Warrant at $0.45,
Both private placement from April 5th and 12th were non-brokered and almost to $2M ($1.5M + $0.45 M). These make up the deficit from Dec. 15, 2016. The loss of valuation seems to have occurred as a consequence to a series of non-brokered placement and has impacted the stock price ever since.
However, this did not seems to resonate with the company as a similar form of financing was repeated which generated some selling pressure,
Nov. 3, 2017 - Closes non-brokered flow-through private placement for 1.5M at $0.37 cents.
What also has not helped CZX.V is their lack of details on the activities of Teck Resources and Korea Zinc Company involvement, along with the inability to deliver a deal for optioning other parts of the property (Mt. Alcock). Furthermore, there is a share buy back pr0gram (started Aug. 1) which CZX.V committed to purchase up to 8.1M shares. To date, only 0.3M share have been purchased representing 4% of the total set amount. Comparing to last years performance (0.5M), the company is on track to do only slightly better.
However, despite the lackluster stock performance this year, we still are bullish on CZX.V. Tongling Nonferrous Metals Group Holdings Co. Ltd. does have a 30% stake in the company. Moreover, Echelon recently issued a fair value of $0.68 and CZX.V's current book value is $0.50. There are also a few potential catalysts noted in the investor presentation (p. 26) for the next two quarter which include metallurgy, resource calculation, and the preliminary economic assessment. Having said that, we will be on the look out to see if a brokered placement finally gets the price to correct.
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