Exploration company Ironbark Zinc Limited (ASX:IBG) owns the largest zinc deposit held by an Australian listed company, with a resource exceeding 13 billion pounds of contained zinc and lead metal. The company is on the cusp of lodging its application for a mining licence and hopes to start production in 2017.
The zinc rollercoaster
Managing Director Jonathan Downes founded Ironbark Zinc with a couple of colleagues in 2006, originally to focus on gold and base metals. That focus soon changed when their heads were turned by a number of lead and zinc properties put forward to them. The rising price of zinc when the company listed was another persuasive factor – although it didn’t last for long.
“Zinc has been a tough choice as far as commodities go,” Jonathan remarks. “Zinc soared and the stock soared when we first listed and began to pursue our zinc aspirations. But the global financial crisis hit zinc probably harder than any of the other metals, and it’s been a long and painful grind returning from that.”
Ironbark may have felt zinc’s price slump when it occurred, but in the long term it may have worked to the company’s advantage. It resulted, says Jonathan, in a lack of new zinc mines at a time in which several large zinc mines are reaching the ends of their lives. Owning 100% of a world-class zinc deposit makes Ironbark a rarity right now, with a huge competitive advantage.
The best part is that the zinc price, although still well below the 10-year price average, is back on its way up. It has increased by about 20% in the last six months and shows “a strong upward trend,” says Jonathan, which has been reflected in Ironbark’s share price.
“Wood Mackenzie has some very bullish forecasts for zinc starting from next year, when one of the world’s largest lead-zinc mines shuts in Australia due to ore depletion,” he adds. “We’re part of the solution; our mine will replace around a third of the zinc supply being lost. And there are not many zinc companies with mines in the pipeline now, after what has been a very painful time.”
The Citronen project
Ironbark purchased the Citronen project in 2007 with US$26 million gained through a rapid fundraising in Australia. The project had been half discovered but left dormant since its Canadian owner went bankrupt in 2000.
“We’ve spent a further $50 million on the project since 2007, completing a full feasibility study,” says Jonathan. “This included the purchase of four diamond drilling rigs and completing 64 kilometres of diamond drilling on the project, in addition to appointing Tier-1 independent engineers from around the world to assist in the project studies and development.”
These engineers included global services provider Metso, who designed the mine’s processing plant; leading Nordic contractor MT Højgaard, who took care of the site infrastructure; and Wardrop Engineering, now owned by US-based Tetra Tech, who oversaw the studies overall.
The resulting feasibility study showed the Citronen project to be not only profitable, but also world-class. The resource comprises 71 million tonnes at 5.7% zinc and lead (Zn + Pb), amounting to more than 13 billion pounds of contained zinc and lead metal. Ironbark plans to mine this at a rate of 16.5 million tonnes at 7.1% Zn + Pb for the first five years, upgrading it to a mill feed grade of 11.4% Zn + Pb at a mining rate of 3.3 million tonnes per annum (mtpa). The resulting concentrate grade will be approximately 55% Zn and 50% Pb.
Citronen’s Net Present Value was calculated at $609 million (post-tax: $345 million) and an Initial Rate of Return of 32% (22.2% post tax). Its capital cost is $429.3 million and operating cost 71 cents per pound of zinc, resulting in an 18-month payback period. The mine will run for 14 years, delivering $5.65 billion in revenue over the course of its life.
For Jonathan, it’s the ore body and location that stand out as particularly advantageous. “It’s shallow and it’s simple; it’s a sole, flatline, sedimentary deposit,” he remarks. “It’s also open-ended, and as a geologist I’m always excited by things that have the potential to yield so much more. The ore processes in a very simple fashion, and we find a lot of comfort being in the jurisdiction of Greenland.”
Looking toward 2017
Ironbark recently completed a bookbuild to raise $2.5 million with which to progress permitting and pre-development preparation works at Citronen. It was an overwhelmingly successful fundraising, receiving four times the interest that could be accommodated.
“We were ridiculously swamped with funding,” Jonathan remarks. “It was a difficult capital raising in a way, because we couldn’t accommodate many of those who wanted to participate in the placement. But the task of simply raising the funds was fantastically easy.”
After two and a half years of close collaboration with the Greenlandic government, Ironbark has completed all the environmental studies and similar for Citronen and has just lodged its application for a mining licence. Jonathan expects this to be granted within the next 12 months.
In the meantime, Ironbark will be working at progressing its relationship with China Nonferrous, with whom it has signed a memorandum of understanding (MOU) for a lump sum pertaining to the engineering, procurement and construction and commissioning (EPCC) of the mine. This contract is associated with 70% debt funding and 20% direct project investment. The largest shareholders in the project are Glencore and Nyrstar, who also have rights to some of the mine’s production through offtake agreements. Production is expected in 2017, after which Ironbark will be ready to take the world by storm.
“If we can make Citronen a top-five global zinc mine, we will have achieved pretty much all of our major targets,” says Jonathan. “From that point, we’ll be looking to expand the business through further acquisitions – companies in other countries as well as other assets.”
The Citronen project has enough zinc to achieve this goal already; but, as mentioned earlier, it also has “enormous” upside that the 14-year mine plan won’t reach. “The ore body remains open to mineralisation in many directions, and it’s limited purely by the drilling we’ve completed to date,” Jonathan explains.
“Nonetheless, given our limited budget and the planned 14-year mine life of Citronen, we have more than enough to develop now. We’d rather do that than spend more time and money trying to prove up just how big the mine might eventually be. We’ll certainly be looking at expanding Citronen,” he adds, “but I think it will be very worthwhile to find other projects around the world as well – perhaps even another Citronen.”
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