Zinc comeback propels Breakwater

Zinc prices have come back from the dead, and their return has breathed new life into Breakwater Resources (BWR-T).

While spot prices for zinc were in the low 50 per lb. range at the beginning of February, concerns over supply shortfalls, coupled with renewed faith in the global economy and inflation fears have brought the metals price as high as 72 per lb recently.

Coming along for the ride has been the once maligned Breakwater.

Its shares were trading in the 11 range in early February, but on May 11 they closed at 30 on a massive volume of 26 million shares – making it the second most actively traded stock on the day.

Toronto- based Breakwater, with its three producing zinc mines in Canada, Honduras, and Chile, was hit hard last year by falling zinc prices and questions as to whether or not it could continue as a going concern.

But an equity issue announced in March led to the company raising the money it needed to get its books back in order. In all Breakwater raised $23 million by issuing 230 million units made up of a share and a half of a warrant with a five year term and a strike price of 12.

“The fact that they’ve survived and that they did a balance sheet repair with the equity finance, people are more confidant,” says Orest Wowkodaw of Canaccord Adams. “[Market participants] are playing this as an option on zinc and there’s so few plays on the market.”

Lacking the glamour of platinum or gold, or the high profile of uranium, there isn’t much talk of a zinc ETF coming any time soon. That leaves investors with little choice but to partake in the metal through the few companies that are considered to be zinc pure plays.

“Companies with zinc exposure will have the best bang for the buck,” says David Charles of GMP Securities. “Hudbay Resources (HBM-T), Lundin Mining (LUN-T) and Breakwater all have good zinc exposure. But Breakwater is viewed as a more levered play on zinc price.”

In other zinc related news Hudbay announced that it was cashing in on the recent run on zinc and corresponding strength in Lundin’s stock price.

The company – which was only a short time ago trying to acquire Lundin in a deal shunned by its shareholders – said it was selling all of its 16.7% stake in Lundin to GMP Securities. GMP will pay $236 million in cash representing a before tax gain for Hudbay of $100 million.

The news ended Lundin’s steady upward climb as it finished the day off 12% at $2.57 on 120 million shares traded. Its shares were trading for as low as 80 in early February.

Hudbay shares finished the day 2 higher at $8.09 on 1.8 million shares traded.