With stockpiles worldwide hovering at near decade lows and spot prices for zinc sitting at levels not seen since 2006, analysts and industry experts alike agree: a long-term, fundamental shift in the supply/demand metrics for the industrial metal is underway.
Continued demand growth stemming from China and other emerging economies, combined with dwindling output from the world’s major zinc mines, are pushing market prices for zinc progressively higher to what many consider the will be the norm going forward.
Analysts at investment banks expect the zinc rally to extend for many years and predict that any declines in spot prices will be outpaced by zinc’s strong fundamentals story.
Figure 1. London Metal Exchange Zinc Inventories and Spot Price, February 2017
Zinc, the fourth most commonly used metal, represents a critical input to the steel-making process because of its anti-corrosive characteristics. The industrial metal’s most common use is being galvanized with steel, providing a protective coating that prevents rusting.
“China is consuming so much zinc each year that despite being the world’s largest producer it has become a net importer of zinc.”
Emerging countries, such as China and India, continue to grow at record paces as they attempt to industrialize and modernize their economies with massive infrastructure plans. Their demand for steel, and in turn zinc, are moving the demand curve to new heights. In fact, China is consuming so much zinc each year that despite being the world’s largest producer it has become a net importer of zinc.
And with major zinc mines around the world either slowing down or preparing to close all together, the rush is on to identify and exploit new deposits of zinc.
In response to this, hundreds of junior mining companies have begun scouring the globe in search of the next great tier-one zinc deposit. A few juniors have even reported promising results, including Altair’s 9.8 meters of 10.11% zinc and Darnley Bay’s 72 meter intercept grading 5.6% zinc.
But in an industry where grade is king and high grade is rare, one junior has managed to steal the limelight.
Zinc One Resources (TSX-V:Z; OTC:ZZZOF), a new formed vehicle trading on the TSX Venture exchange under the ticker symbol “Z”, has acquired a past producing zinc mine in Peru where grades run an almost unheard of 20-21% zinc. This junior has positioned itself as what many consider to be the premiere investment opportunity within the zinc space.
Formed in late 2016, Zinc One has since raised $12 million and closed on its acquisition of Forrester Metals, consolidating control of the Bongará zinc mine and adjacent Charlotte Bongará project. Combined, the Company now controls over 11,000 hectares of prime real estate in the heart of Peru’s prolific zinc producing belt.
Bongará Zinc Oxide Mine
Discovered in 1973, the Bongará deposit sits down strike of Solitario Exploration’s Florida Canyon deposit, which host an N.I. 43-101 compliant mineral resource of 12.9 million tonnes grading an impressive 13% zinc equivalent.
Based on the sizeable amount of work completed previous operators, a historic resource estimate (non 43-101 compliant) was completed in 2008 on the Bongará deposit that outlined one million tonnes grading 21.61% zinc.
For comparison sake, Teck Resource’s Red Dog mine in Alaska, considered one of the highest-grade zinc deposits in the world, produces an average head grade of 14.6% zinc.
Its these types of grades that make Bongará unique when compared to other zinc deposits throughout the world. It’s also why the marketplace is waiting with such anticipation for Zinc One to begin drilling.
The company has outlined an aggressive drill program that will confirm the historic results as well as target untested extensions of the deposit along strike and downslope. Drilling is expected to commence in July after permits are received and will include up to 300 drill holes.
Even more impressive is the shallow, near surface nature of the Bongará deposit, which outcrops at surface. Sampling of numerous outcrops by Zinc One geologists have assayed as high as 40% zinc.
Near surface also means the likelihood for conventional open-pit mining operations, which typically require less initial capital expenditures to develop and equate into lower operating costs.
Figure 2. Outcropping zinc-oxide mineralization at surface, Bongará deposit
Bongará has a brief history of past production as well. In 2007 a private Peruvian company established a small operation extracting ore. Thanks to the high-grade nature of the deposit, direct shipping ore was trucked halfway across the country to the western Peruvian coast, where it was processed and turned into a zinc calcine concentrate.
The operator, a small Peruvian concrete company, was unable to survive the onslaught of the global financial crisis and depressed metal prices. The mine was placed on care and maintenance in mid-2008.
In total, the operator produced approximately 55 million pounds of zinc before halting production and demonstrated Bongará’s straightforward metallurgy process, utilizing the conventional Waelz kiln process to recover more than 90% of material.
Zinc One plans to build on this in 2017 by bringing the historic resource estimate up to 43-101 standards. Additionally, the company believes that its sizeable drill program could double tonnage at Bongará to two million tonnes while not diluting grade. Combined with straightforward metallurgy, the Bongará mine represents a low-risk, near-term opportunity to recommence production.
The Zinc One Mentality
The Zinc One team is being led by Jim Walchuck, a seasoned industry veteran with nearly 40 years of experience, highlighted by his former role as Mine Manager for Barrick Gold’s (NYSE: ABX) Bulyanhulu gold mine in Tanzania, where he oversaw development and operations for six years.
His mine building mentality means that Zinc One is laser focused on being a developer, not explorer, of high quality zinc assets. In this, Jim has laid an ambitious plan to systematically move through the exploration and feasibility phases at Bongará, which would place the company at the top of the list in terms of potential near-term producers.
With a Peruvian technical team already in place from the Forrester acquisition, the company has hit the ground running and is utilizing an existing network to build on established relationships with local communities.
Walchuck has already met with Peruvian authorities and made his intentions known that he plans to commence production within 36 months. Being that Bongará was already permitted once for production, the company doesn’t expect major headwinds or delays in the permitting process. Peru is well known as a mining-friendly jurisdiction and its economy is heavily reliant on the mining sector, representing nearly 50% of annual gross domestic product.
Blue Sky Potential
While investors are excited about the near-term prospects of production at the Bongará mine, historic drill results and numerous untested targets along the adjacent Charlotte-Bongará concession offers upside exploration potential not common in these situations.
Based on compilation and review of historic geological data, the company has verified that the current mineralized trend hosting the past producing Bongará mine extends well into the Charlotte Bongará concession.
And with significant amounts of drilling completed by previous operators at Charlotte, the early indications suggest the potential for even higher grades- reported intercepts have included 15 meters (45 feet) grading 29.5% zinc and 11.5 meters (34 feet) of 29.7% zinc.
“If grades hold up, Zinc One may be looking at a district play that could host multiple deposits, representing a rare situation where a junior could actually impact the global zinc supply.”
Zinc One plans to collar these historic holes as well as drill untested targets beginning in July. If grades hold up, Zinc One may be looking at a district play that could host multiple deposits, representing a rare situation where a junior could actually impact the global zinc supply.
Bringing It All Together
Zinc One has established itself as a rare investment opportunity to fast track production and bring a high grade, near surface and past producing zinc mine online at a time when worldwide supply of zinc continues to dwindle. In addition, the company has consolidated key adjacent concessions, giving its shareholders exposure to exploration potential through the drill bit.
Leadership has shown the ability to bring mines online and the Peruvian operations team is experienced in permitting and fostering local community relations.
With over C$8 million in treasury and a market cap of just $30 million, this junior represents the premier investment opportunity within the zinc space.
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