Patience has been the name of the game for ASX-listed Ironbark Zinc at its 100% owned Citronen base metals project in Greenland. The project contains one of the largest undeveloped zinc-lead deposits in the world, and since acquiring it in 2007, the firm has completed a feasibility study, most recently updating the study on a costs basis last year. The company also worked tirelessly over five years to secure a 30-year mining licence, which resembled a major breakthrough. “Large scale projects do tend to take quite a while to get through to the full production phase, but when we purchased the project in 2007 it was a deposit that had not been fully drilled out and it still hasn’t been full drilled out,” says managing director Jonathan Downes.
“It remains open to further mineralisation in every direction. We’ve now spent about US$50 million on the project, completed 65 km of diamond drilling and made the resource four times larger than when we first purchased it.”
A tier one base metals project
Citronen consists of simple, flat and contiguous ore zones that form a giant zinc (Zn) + lead (Pb) JORC 2012 resource of 132 million tonnes (Mt) at 4.4% Zn + Pb, equivalent to 12.8 billion pounds of Zn, making it a genuine tier one base metals project. In addition, the resource also contains a higher grade portion of 71Mt at 5.7% Zn + Pb, which will be the target for initial mining.
This year, Ironbark has been able to move into the final preparatory stages of the project, making real progress from a financial and operational point of view. In August, the company welcomed a host of visitors to the site, including potential investors, bankers, private equity groups, equipment suppliers and mining operators.
In the aftermath of the site visits, the company announced it had entered into a mining services agreement with Byrnecut Offshore – an internationally recognised mining contractor with an exceptional depth of experience in underground mining, according to Downes. “They are one of Australia’s biggest mining service suppliers,” he adds.
Ironbark remains in discussions with other highly regarded groups and hopes to announce additional operational and financial partnerships for the Citronen project in due course. The company also recently took a team to the project with the intention to commence site activities.
“We started the box-cut to the decline, which was more than anything to prove that we were in a position to start breaking ground at the site.
“We also took a cargo ship up to the site, primarily to prove the shipping route and the concept and get a good handle on the logistics that we will be looking at when we are in steady state production.”
The company also appointed London-based Cutfield Freeman to manage the overall financing process and is hoping to put tenders out for long lead items at the beginning of 2019.
While 2018 has been a year of significant progress at the Citronen project, with site works commencing and financing arrangements beginning to take shape, the groundwork for these developments were laid by the company over the course of 2016-17.
In late 2016, Ironbark was awarded a 30-year mining permit for Citronen by the government of Greenland after signing an impact benefit agreement, before publishing a renewed feasibility study with updated costs in the following year.
Compelling economic metrics
The updated feasibility further reinforced the compelling economic metrics of the project, with a post-tax net present value (NPV) of $909 million and annual profit estimated at up to $270 million, against capital costs of $514 million at an assumed zinc price of $3,044 per tonne.
“Citronen is a significant mine that will produce approximately 200,000 tonnes of zinc metal each year, which is nearly 10 times larger than the average zinc mine around the world.
“It’s a large-scale operation with an exploration target resource of between 302-357Mt at a 4.4-5% Zn + Pb grading. The potential of having 3.3Mt resource makes it an obvious contender to be a significant long-life zinc producer.”
Citronen is one of most recently discovered large-scale zinc deposits in the world and is comprised of an open pit portion with a low strip ratio of 2:1 for 10Mt of reserves, along with a higher grade underground mining scenario.
“We have a very open-ended deposit both at depth and laterally in every direction, the orebody just continues. The most Southern drill hole is still grading 12% zinc and we are getting rock outcrops of zinc in situ at 18% on surface to the Northwest, so this system is massively open.”
The underground mine is very shallow, starting at 40 metres deep and is incredibly continuous being a sedimentary style deposit, with Downes likening it to a coal seam. Overall this makes for a simple and cheap mining method and large tonnage production.
The only real challenge in this project is its location in Greenland, one of the most remote regions in the world. “The location is the key point of difference, so to de-risk the project we took a ship up to the site this year.”
At the end of August, the company report that the icebreaking ‘Nunavik’ – a 189 metre long polar class cargo ship successfully proved shipping access to the Citronen site, marking the first time a large commercial ship has travelled so far North on the Eastern coast of Greenland.
This milestone feat adds another layer of achievement to Ironbark’s stellar 2018 and puts the company in a great position to move into full construction at the site next year, after proving up logistical access to the remote location.
The project economics have been further sweetened by recent upward price movement in the zinc market, which is being shaped by a combination of growing global demand and depleting supply, with several large-scale deposits around the world reaching depletion – such as the 500,000 tonnes per annum Century mine in Queensland, Australia.
“That has been a very welcome turnaround,” says Downes. “The current price of zinc is fantastic and does offer some great returns for investors once we are in production. The overall dynamics in the zinc market look like they are going to stay with us for some time too.”
China’s zinc market
The managing director refers to tightening rules and regulations in the Chinese zinc market as a key factor influencing the current global zinc market. China is the world’s largest producer of zinc, but production has been falling as the global superpower attempts to align its environmental standards with the Western world.
In several Chinese mining provinces zinc, lead and other dangerous elements such as cadmium have been released into the environment from the mining process, causing hazardous pollution while also impacting water resources, soils, vegetables, and crops.
However, with an increased awareness of the harmful legacy of its zinc mining industry, China has instigated strict environmental inspections which pushed year-on-year production down by 6.3% to 476,000 tonnes in the month of July.
“For the first time we are seeing that China is not delivering a big supply response into a rising zinc price, which is great for everyone else,” says Downes.
“In addition, the Chinese use about 25% of the world’s zinc per unit of steel. Now, as some of their cars start to get galvanised, and issues such as rusting are addressed with other equipment, we are going to see a much higher level of zinc consumption from China as the country modernises.
“There would have to be a lot more zinc mined and put into production to meet that ultimate demand, if they were to meet the standards of the Western world.” This is why Downes believes that the current supply-demand dynamics in the zinc sector are set to persist long into the future.
Full steam ahead
Turning to recent news, Ironbark has very recently entered into a Memorandum of Understanding (MoU) with industrial giant Metso Sweden, which will provide a framework for the two to negotiate a commercial agreement for services and equipment supply to the Citronen project.
One of the world’s largest equipment suppliers, Metso has already worked closely with Ironbark on the feasibility study and have maintained close communication since the study was completed.
“Metso are the group that we are working with mostly on building the project plant. We will be attempting to keep the content mostly European where possible in order to have access to European Credit Authority financing.”
To conclude, over a decade after first acquiring the Citronen project, Downes declares that at the end of 2018 it feels like all the pieces are finally coming together for Ironbark in Greenland.
“We are very pleased with our recent progress and from a timing perspective it has worked out when the world really needs us. Zinc stockpiles are now at critically low levels, and I don’t think that is going to be resolved until some big mines, like Citronen, get up and running.”