Research company recommends 'speculative buy'

The following is an extract from a report on Zamia Metals (ASX: ZGM) by Sydney research firm Seismic Research.

The company placed a 'speculative buy' recommendation on the stock.

Capital Structure

Share Price: A$0.125
Ordinary Shares: 187.2m
Options: 20.8m
Market Cap (fully-diluted): A$26.0m
Cash: A$1.6m
Enterprise Value: A$24.4m

Exploring & developing porphyry Moly deposits in Queensland

Zamia Metals is an Australian mineral explorer/developer that is focused on developing its Anthony Molybdenum project (100% Zamia), which hosts a 193 million tonne (mt) JORC-compliant molybdenum (moly) resource at 400 parts per million (ppm).

The Anthony Moly Project is located 68 kilometres north west of the town of Clermont in Queensland. The project is located close to both roads and rail, which connect to the major export terminals at Mackay and Rockhampton.

The Anthony deposit is a porphyry-style moly deposit that is weathered to a depth of 60 metres to 80m, so that a primary (sulphide) zone is overlain by a secondary (oxide) zone.

Hellman & Schofield (independent geological consultants) estimated the 77,200t moly resource.

The Molybdenum Industry

Moly is mainly (80%) used as an alloying metal in steel, cast iron and super alloys to increase hardenability (ability to be hardened by heat treatment), strength, toughness and corrosion resistance.

Moly compounds are also used as high temperature lubricants (in the oil industry) and as a dry powdered fertiliser.

There are few close substitutes for moly in its major application as an alloying element in steels, alloys and cast irons.

In fact, because of the availability and versatility of moly, many industries have sought to develop new materials that benefit from the alloying properties of the metal.

Molybdenum Prices

The outlook for moly is determined, to a large extent, by the outlook for steel.

World steel output posted a solid gain of 15% for 2010 (driven largely by China), which should have put a large dent in the expected 75m lb moly stockpile.

With steel production growth expected to slow slightly to 5 6% in 2011, but with stockpiles running lower, Seismic Research expects moly oxide prices to trade in the range of ~US$15 20/lb during 2011 (currently ~US$17/lb, FOB North America).

Anthony Moly Project Resource

The 130mt sulphide zone of Zamia s resource has both high-grade (15mt at 730 parts per million (ppm) (Mo) and lower-grade (400ppm Mo) zones. Metallurgical testing has shown that it is possible to upgrade the lower-grade ore; material averaging 450ppm Mo could be upgraded to 1000ppm Mo.

Initial laboratory flotation tests indicated moly recoveries of 90% and a concentrate grade of over 50% moly. Due to the nature of the resource (mostly moly only) any potentially deleterious elements (Cu, Pb and As)
in the concentrate should be well below rejection levels.

Initial assay results have been received from Zamia s deep diamond drilling at Anthony; results included a very promising intercept of 156m at 1,100ppm moly (from 246m, downhole).

Detailed logging of the new core data and recent petrographic studies confirm that the deposit remains open at depth and laterally.

Investment Outlook

Seismic Research has determined that the 5 most important investment highlights, in determining the outlook for Zamia Metals are: moly ore processing, the exploration potential of the Company s assets, the project s location, the mining jurisdiction and the Company s management.

Moly Ore Processing

Zamia s 130mt sulphide moly resource has both high grade and lower grade zones. Preliminary metallurgical testing has shown that it is possible to upgrade the lower grade sulphide ore by a simple and cheap beneficiation process.

Ore averaging ~450ppm moly could be upgraded, at low cost, to ~1,000ppm moly.

This gives Zamia the flexibility to selectively mine the highgrade
areas for high grade feed and blend it with upgraded ore from the lower grade areas.

This will increase the head grade of the feed into a concentration (grinding and flotation) plant, which will reduce capital and operating costs, by reducing the amount of material processed by the concentration plant.

The pre concentration process will produce, in addition to a high grade plant feed, a low grade stockpile, which can be processed later in the life of the project, or if the price of moly increases.

By processing the higher grade ore earlier, Zamia will potentially increase the project s net present value, by bringing larger cash flows forward.