Which Companies Could Benefit from a Zinc Supply Deficit?

As zinc market watchers are likely aware, the big question right now is whether the metal is due to fall into deficit. The second-biggest question, of course, is which companies will benefit if zinc supply does indeed fall short of demand. 

One way to gauge whether a company is poised to take advantage of that eventuality is to see if it has a preliminary economic assessment( PEA). As a 2012 Canadian Securities Administrators staff notice explains, though PEAs “can only demonstrate the potential viability of mineral resources,” they are important to market watchers because they are “generally the first signal to the public that a mineral project has potential viability.”

Here’s a look at five companies that have a zinc project with a PEA. They are listed in the order in which they received that documentation.

InZinc Mining (TSXV:IZN)

Formerly known as Lithic Resources, InZinc Mining completed a PEA for the Crypto zinc-copper-indium project back in August 2010. Unfortunately, it didn’t receive the most positive reception. For one, John Kaiser of Kaiser Research Online said, “the resource needs to double if the deposit is to be developed as an economic underground mine at an optimal scale of 3,500 tpd.”

However, since that time, InZinc has commissioned a new PEA for Crypto, now called West Desert. The company “believes there is significant potential to improve the project by expanding the scope beyond previous assessments.” Encouragingly, Kaiser seems to agree. In a recent Mining Markets interview, he identified InZinc as a company that could benefit in the current market. “That company now has some strong management on board and they’re gearing up to do some drilling and move to a prefeasibility,” he said.

Trevali Mining (TSX:TV)

Trevali said in November 2013 that a number of work programs aimed at updating a 2010 PEA for its Halfmile property, located in New Brunswick, Canada are in the works. The company also reportedly plans to complete a PEA for its Caribou mining and mill complex in the near future.

More importantly, in February, Trevali achieved commercial production at its Peru-based Santander mine, becoming the only primary zinc producer both the TSX and TSX Venture Exchange. The company’s path to that point has been fairly smooth. It began producing concentrate at Santander in August 2013, and by September had “increased both mill throughput and head-grades to the point” that both were at the processing plant’s nameplate design capacity of 2,000 tonnes per day.

Over the next few months, mill performance improved steadily. When January rolled around, average zinc recovery sat at 84.9 percent, while average lead and silver recovery came in at 84.8 and 70.7 percent, respectively. At that point, the mill had processed about 310,000 tonnes of feed and produced 22,000 tonnes of zinc concentrate and 7,000 tonnes of lead-silver concentrate.

Moving forward, Trevali plans to continue optimizing operations at Santander “to further boost efficiencies, recovery rates and metal concentrate production.”

Zincore Metals (TSX:ZNC) 

In October 2011, Zincore received a PEA for its Southern Peru-based Accha Zinc Oxide District project. However, since releasing that PEA, Zincore has gone on to complete a prefeasibility study( PFS) for the project.

The PFS looks at two scenarios for the production of final products for sale, a base case and a fume case. The former “investigate[s] further processing of the fume by the Company to produce a special high grade … zinc ingot and lead sulphate, by-product,” while the latter “consider[s] selling the zinc-lead fume to third-party refineries.”

The base case — which assumes a zinc price of $1.26 per pound and a lead price of $1.04 per pound — estimates a pre-tax NPV of about US$249 million and an after-tax NPV of $150 million, both at an 8-percent discount. Its IRR comes in at 28.6 percent before tax and 20.5 percent after tax. It places start-up capital at $345.5 million and the mine’s life at eight years; during that time, it is expected to achieve an average ore production rate of 1,340 kilotonnes.

Meanwhile, the fume case’s pre-tax NPV at an 8-percent discount is $151 million before tax and 91 million after tax, while its IRR is 26.7 percent before tax and 19.2 percent after. It assumes a zinc price of $1.27 per pound and a lead price of $1.04 per pound, putting the mine’s life at nine years and start-up capital at $214.5 million. Average yearly ore throughput is pegged at 1,349 kilotonnes.

El Nino Ventures (TSXV:ELN)

El Nino Ventures announced in June 2013 the results of a PEA for its New Brunswick-based Murray Brook zinc-copper-lead-silver project, commenting that they show that establishing a new mine and mill complex at the property is economically viable.

Specifically, the PEA — which assumes a zinc price of $0.94 per pound, a copper price of $3.70 per pound and lead price of $1 per pound — estimates pre-production CAPEX of $261 million and mill throughput of 2 million tonnes of ore per year over a mine life of 9.5 years. The mine is expected to put out a total of 239,000 tonnes of copper, 122,000 tonnes of lead concentrate and 770,000 tonnes of zinc concentrate during that time. The PEA also outlines an after-tax NPV of $96.4 million at a 5-percent discount rate, an IRR of 11.4 percent and a payback period of 5.4 years.

El Nino notes on its website that this year it plans to complete an exploration drilling program and expanded metallurgical studies at Murray Brook.

Zazu Metals (TSX:ZAZ) 

Earlier this month, Zazu Metals provided the results of a PEA for its high-grade zinc-lead-silver Lik property, located in Northwest Alaska. It considers the open-pit potential of the Lik South deposit, but does not take the contiguous Lik North deposit into account.

In total, Zazu expects to mine 17.1 million tonnes of ore at an average grade of 7.7-percent zinc, 2.6-percent lead and 47 grams per tonne silver from Lik South. Average annual production should come to 234,000 dry tonnes of zinc concentrate and 55,800 dry tonnes of lead concentrate.

The PEA estimates a total capital cost of $352 million, including a 20-percent contingency, for a 2-million-tonne-per-year mine and mill with an initial mine life of nine years. It outlines NPV and IRR for a range of zinc prices, noting that at a zinc price of $1, Lik South would have a post-tax IRR of 13.4 percent and a post-tax NPV of $83 million at an 8-percent discount rate.

Did we miss a company that has a zinc project with a PEA? Please let us know in the comments.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: InZinc Mining, Trevali Mining, Zincore Resources and Zazu Metals are clients of the Investing News Network. This article is not paid-for content. 

Related reading: 

Zinc Outlook: Mine Closures May Push Prices Up in 2014

Trevali Achieves Commercial Production at Peru-based Santander Mine

Zazu Metals Posts PEA for Alaska-based Lik Property