The Plomosas Zinc Project in Chihuahua state, Mexico became known to ASX-listed Consolidated Zinc in mid-2014 and became more interesting to the company when a buy-in deal materialised for the mine, which has historically operated at three times higher than the average grade of zinc mines around the world. Located around 350 km from Mexico’s border with Texas, Plomosas was underground mined from around the end of World War II to 1974 at grades of approximately 17% zinc and 7% lead. Based on these outstanding historical grades, Consolidated decided to acquire a 51% interest in the project, which was increased to 90% in December last year. Mexican joint venture partner Retec Guaru currently retains the remaining 10% interest in Plomosas, although Consolidated is pursuing a move to 100% ownership of the mine.
The Mexican dream
After buying in to the Plomosas project, Consolidated found itself entering a progressive and advanced Mexican economy that is one of the largest in Latin America, says managing director Brad Marwood.
“Especially with the increasing levels of trade with the US, Mexico has developed a high-tech market. The country provides very good internet services, infrastructure, communication, medical services – it’s like coming home. It’s fabulous!”
An added bonus for Marwood has been the opportunity to sample Mexico’s world-famous culinary scene, particularly in Chihuahua where the Texmex dishes are tremendous, according to the MD.
From an operational perspective, mining in Mexico goes back over 500 years and the contemporary industry is occupied by some of the largest mining houses in the world, including domestic giant Grupo Mexico and North American powerhouses Newmont Goldcorp and Agnico Eagle Mines.
The presence of these mining majors in Mexico denotes a jurisdiction that is pro-foreign direct investment in the mining sector, which contributes around 8.3% to industrial GDP and 2.5% to national GDP, while supporting over 370,000 direct jobs and over 1.7 million indirect jobs in 2017.
The only drawback to operating in Mexico comes in the form of high local interest rates of around 18-20%, which necessitate up front payments for many goods and services. This sometimes provides a cash flow management challenge for Consolidated.
“The cost on a pump or renting a vehicle is very high because there is an inherent interest charge associated with the US dollar borrowing rate in the space. Whereas, I go across the border into Texas and the borrowing rate can be counted on one hand. That brings things down to around half the price,” says Marwood.
Defining the resource
In April 2018, Consolidated defined a JORC resource of 1.17 million tonnes (Mt) for the Plomosas project at an average grade of 14.3% zinc, 2.63% lead and 17g/t silver. Within five months of defining the resource, the company had commenced mining at the operation in September.
For Marwood, getting a resource defined was crucial to re-starting production at Plomosas, especially given the haphazard approach to production taken by the previous owner.
“The mine had been in operation in 2013 but without a JORC resource defined. It was very much hand to mouth – let’s drill some holes and then mine it. That was very unrewarding because it didn’t define the ore sufficiently well enough to have continuity of production. We felt that the better approach was to get a resource defined.
“Given the history of 30 years of operation from post-WW2 to 1974, we felt confident that the orebody was more like a metronome in a consistent operational environment and so we didn’t feel the need to drill off to measured and indicated, and we brought the mine into operation against the inferred resource.”
Operations commenced at the Tres Amigos section of the mine, although the company has recently moved across to the Semi-oxidised (Sox) area of mineralisation, which is in the original higher grade host environment.
“We’re currently operating, mining and delivering to our process plant at around 27% zinc equivalent. I don’t think there are many operations in the world that can claim that level of head grade,” Marwood claims.
Higher grades, higher revenue
Consolidated produced 7,000 tonnes of ore in May 2019 – the first full month that utilised material from the Sox section of the mine. The company had initially laid out plans to increase its monthly production to 10,000 tonnes, but a new toll treatment agreement will allow Consolidated to meet its revenue expectations without hitting the 10,000 tonnes target.
The new offtake deal with Grupo Mexico includes an alternative toll treatment agreement for the Sox material, which will provide a higher revenue per tonne to Consolidated due to the 27% zinc equivalent grade versus the 15.5% grade of the Tres Amigos ore.
In addition to this, the stockpiles at the mine and mill are currently at full capacity, so Consolidated has had to slow down its mining rate until the throughput of the process plant is increased. The company is working with the owners of the Aldama plant and has assisted them in the installation of a new mill and flotation cells.
The expansion should significantly boost the plant’s capacity from the current 100 tonnes per day nominal rate to around 250 tonnes per day, which is around 7,500 tonnes per month.
“If we start putting 27% zinc equivalent through the plant at 7,500 tonnes per month, then compared to our aspirations of 10,000 tonnes per month with the Tres Amigos ore, we’re talking about a serious uplift in the revenue stream.”
There is also a significant opportunity to add additional resources to the project through in-mine exploration at Plomosas, and Consolidated is following a cost-effective strategy to unlock those extra resources.
The company is close to completing a dewatering process down to the bottom of Level 10 of the mine, 400 metres below surface.
“With access to Level 10, we can drill very short drill holes up into the orebody and down into the orebody to do our exploration drilling, with far more cost-effective results. Instead of drilling 200 metres for an intersection of 4–5 metres of orebody, we will drill 30–50 metres with a 5 metres intersection.
“Our plan is to get started on that before the end of the year. A programme of six months of drilling should see us achieve the outcomes that we seek, which is to define and drill extensions down dip of the high grade Sox mineralisation to the Level 10 area, which could be sufficient for multiple years of operation.”
There is also near-mine exploration potential at Plomosas, especially given that during 30 years of historical mining 2.5Mt of ore was extracted from just 600 metres of a known mineralised area of 4 km.
Hypothetically speaking, there could be up to 20Mt of ore available at a grade of 23% zinc equivalent over the 4 km mineralised zone, based on historical production within the 600 metres area. Consolidated’s mid-term exploration strategy revolves around extending along the 4 km zone to capture the extra resources.
“Our target is to define that deposit and build a fit-for-purpose processing plant with a capacity of up to 0.75Mt per annum, which will produce 50-70,000 tonnes of zinc concentrate per year,” says Marwood. “We would also like to set up a long-term relationship with a smelter, preferably in Mexico.”
Right now, Consolidated is offsetting exploration expenditure, putting cashflow into the company and meeting its costs rather than diluting shareholders with additional capital raises for exploration. Within a two-year timeframe, the company aims to deliver a full-scale operation at Plomosas that is capable of delivering annual profits North of US$50 million.