A company-making zinc deal

Barry FitzGerald

There is a whole bunch of ASX-listed junior zinc developers jostling for market attention as the prices for the galvanising metal continues its merry run in to 2017. But the lot of them have been gazumped by Attila Resources (ASX:AYA), a listed shell which has pulled off a company-making deal, one that could quickly establish it as a global Top 10 zinc producer – a nice ranking to have given the zinc price continues to shine at $US2,812 a tonne – up 34 per cent on last (calendar) year’s average of $US2,094 a tonne. So this week I take a look at Attila, and also look at growing investor interest in Zinc of Ireland ahead of a drilling campaign, and Glasenberg on why it’s all about the supply side for metal prices.

Attila is to pony up with Patrick Walta’s Raging Bull Mining, a privately held mineral processing specialist with an “economic rehabilitation’’ bent, to return the Century zinc operation in north Queensland to production as a tailings retreatment operation, possibly as early as late next year.

It was Raging Bull which struck a deal to acquire Century and all of its associated infrastructure assets from MMG, with Attila subsequently striking a deal to acquire an initial 70 per cent interest from Raging Bull for 30m Attila options, a royalty, and sole funding responsibilities of $A10m over the first three years, subject to shareholder approval.

The Chinese-controlled, Hong Long-listed, and Australian-managed MMG mined its last ore at Century in late 2015 and processing came to an end in early 2016. Over its 16 years in production, Century was one of the world’s biggest zinc producers, with average annual production of 475,000 tonnes of zinc and 50,000 tonnes of lead.

Somewhat ironically, it was the closure of Century on its orebody being mined out, and the closure of some other notable zinc mines overseas, that has been one of the key factors in zinc’s price surge.

Long-term planning by MMG for Century’s closure envisaged capping the tailings dam at a cost of about $US100 million. But that would have locked away $US7 billion of zinc (before retreatment costs and ignoring metal recovery rates) in the tailings (71 million tonnes grading 2.73 per cent zinc for 1.94 million tonnes of contained zinc).

A number of metallurgical studies pointed to the potential for the recovery of about 50 per cent of the zinc in a reprocessing operation using the existing processing plant (7 million tonnes-a-year), but with some modifications that would likely cost somewhere between $US50-$US100m, all of which needs to be confirmed in more studies.

Enter Raging Bull with its penchant for matching up profitable tailings reprocessing operations to rehabilitation requirements, the idea being that as time goes by, a portion of profits goes to replacing environmental bonds currently in place (and backed by MMG for 10 years), noting that the actual amount shrinks because the footprint of the tailings pond also shrinks.

The upside to the Raging Bull-Attila deal on Century is much more than the potential of the tailings reprocessing operation. Included in the deal are a couple of defined silver-lead-zinc deposits – Silver King (550,000 tonnes of contained zinc equivalent) and East Fault Block (64,000 tonnes zinc equivalent).

They alone would do any ASX-listed junior proud. Then there is the phosphate project potential further down the track, and the strategic appeal of owning a slurry pipeline to the coast, which could be the infrastructure solution for others with stranded deposits along its pathway, and so on.

Having said all that, there is plenty of confirming work – and fund raising - to do before the return of Century zinc on to the market becomes a reality. But at the very least, it can be said that Attila has a much brighter future than was previously the case. Assuming all goes to plan, shares in Attila could resume trading in late April.

ZINC OF IRELAND

Talking about the impact of notable zinc mine closures and the subsequent price benefit of the resultant global supply squeeze, it was back in late 2015 that India’s Vedanta called it quits at its 167,000 tonne-a-year Lisheen zinc mine in Ireland’s County Tipperary.

It was but one of the mines in the last 30 years or so that made Ireland the biggest zinc producer in Europe, and pushed along by the rising zinc price, there are those betting that the Emerald Isle has more of the metal to give up yet.

One of those is the wonderfully named Zinc of Ireland (ZMI). It’s been trading at a princely 1.2c a share for an undiluted market capitalisation of about $11 million. But buying interest is coming in to the stock in response to a potentially high-impact drilling campaign 40km south-west of Dublin in County Kildare.

The Kildare project is ZMI’s most advanced and lies within the Rathdowny mineralised trend about 80km along strike from Lisheen.

The drilling program is targeting extensions of previously identified high-grade mineralisation where there is a near-term chance of establishing a JORC-compliant resource, as well as newly identified priority exploration targets.

A maiden drilling program last year at the Shamrock prospect within the Kildare project area returned some impressive hits, including a 15.6 metre intersection grading 11.17 per cent combined zinc and lead.

News flow from the program will be strong and while there was interest enough in last year’s hits, zinc’s price move since means interest this time around could be amplified.

A FINAL WORD FROM GLASENBERG

Now while much of the above is about the impact of notable zinc mine closures on the price of the metal, it has to be said that Glencore’s strategic value decision to shut-in 500,000 tonnes of annual production has also been a factor in zinc’s stellar price performance.

The shut-ins reduced Glencore’s annual output to one million tonnes. It is now making more from the lesser amount than it was at the full rate, thanks to the price improvement.

Commodity price forecasters worry about the impact on the zinc price when Glencore turns the tap the back on. But rest assured, Glencore boss and master trader Ivan Glasenberg is not going to turn it all back on if there is a risk to damaging the price.

More to the point is Glasenberg’s assessment last week that the market should stop worrying about the demand side when it comes to assessing where to next for metal prices in general. It’s all about the supply side, Glasenberg said.

The pressure is on with capital expenditure by the five big global miners alone plunging from $US70 billion in 2012 to $US25bn in 2016. The new big mines are just not being built for any number of reasons. And zinc is very much part of that story.


Barry FitzGerald

One of Australia’s leading business journalists, Barry FitzGerald, has joined the Resources Rising Stars’ Ten Bagger team. FitzGerald, who is a specialist resources reporter with 40 years’ experience, will publish his highly regarded weekly column...

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