Smelting costI think the unit costs for smelting could be going up is the escalator provisions that I believe are common in the smelting business from what I have read. They essentially get to share in the "good times" when zinc goes up by charging more per ton. Zinc went up alot in the 4th quarter so they got to share in the profit.
In one of the articles I read a few weeks ago, the author indicated smelters were getting so desperate for feed they had reduced charges to 40-60 per ton WITHOUT any escalators. So in actuality, this reduction is HUGE -especially if zinc prices go up. All the increase in prices if no escalators fall the mining companies bottom line. This has been an important component of sensitivity scenarios that can be eliminated by the analysts--increasing sensitivity to price rises.
Good times ahead. I think most smelter agreements are multi year--especially when the smelters want to tie up supply in the face of threatening shortages.
I can easily see the cost decreases in smelting charges adding several cents to cash flow per share. Most analyst have it pegged at around 35 cents a share at 1.20 zinc average for 2017. I will try to estimate the impact under various scenarios but it will be guesswork as it smelting, refining, and shipping. I don't know what % of this is smelting (and the % has likely went up with the escalators with the price rises). Does anyone have any idea on this?
I hope this helps. If it adds a nickel a share to cash flow, the analysts estimates should be going up by about 30-40 cents per share at 6-8 times cash flow.
Once we get out a quarter or two, analysts will also start basing estimates off 2018 projected cash flow which should be higher (with hopefully higher zinc prices and higher output at Santander due to grade increas). I envision a $3 price target from analysts before year-end if no buyout.
Lets see --doubling of output at Santander with 30% increased grade and Halfmile Stratmat PEA all by end of 2nd quarter.
Holding on to my shares tighly.