ZAZ-T bottomed? For more evidence that zinc is about to fly, look no further than Toronto-listed Zazu Metals Corp where Lukas Lundin, chairman of the mining company which bears his name, holds just under 20%.
Interviewed by Mining Journal, Zazu president Matt Ford let slip the company was expecting to gain clearance to trade its shares on the US over-the-counter exchange, OTCQX, in about a month.
That has come about after Ford received a barrage of enquiries from would-be US investors, eager to gain exposure to the company and the strengthening zinc price as – around the world – old mines close and too few open to take their place.
“We have been pursuing a US listing because, don’t forget, although we are based in Vancouver, we are a US-based zinc property; we’re in Alaska!”
Rattling off data from a recently published preliminary economic assessment (PEA), Ford claimed Zazu’s Lik property, half-owned by Teck Resources Ltd, which operates the adjacent Red Dog project, could become one of the world’s largest producers of zinc concentrate.
Said Ford: “We are very leveraged to a rise in the zinc price. When you look forward, anything over US$1 to $1.10 per pound and the project starts to look fantastic (zinc is currently trading just shy of US1.05/lb, up from 83c a year ago).
“As a rule of thumb for every 10c on the zinc price, we are looking at US$80 million on the NPV (net present value) and about 8% on the IRR (internal rate of return) - $1.50 and we are away to the races.”
That said, development was yet to get into full swing and Ford was waiting for a report from the Alaska Industrial Development Export Authority (AIDEA) which should outline in the next few months the extent to which it is ready to shell out on nearby port and road infrastructure to underscore Lik’s commercial viability.
Ford was optimistic. “The nice thing here is that AIDEA is specifically mandated to undertake regional investment. They funded and built the road and port when Red Dog opened. Teck now operates [the port] under licence.
“Obviously [AIDEA] want to see a second user, because they will be able to extract [additional] toll fees,” he said.
He reckoned production wouldn’t kick in until the latter part of this decade and indicated the permitting process had a way to go.
“Given the innate complexity, four or so years is probably a good guess for permitting and construction of the mine.
“I always remind people that in the general context of trying to permit a mine, we've got it fabulous! Mining-friendly jurisdiction rolling out the red carpet for miners, established procedures, adjacent to an operating mine [Red Dog], all the data gathered and blessed. Consequently we're expecting a far less bumpy road than is typically the case.”
When will drilling start? “We have done some preliminary drilling and engineering work, but unlikely to do more this year. Actually, the deposit is so large that exploration drilling is of limited value. We know it’s there and it’s not complicated in any way.”
Zazu’s share price, it must be said, is still a long way from the C$1.75 it floated at in 2007, trading at around C$0.53.
Ford reckoned the market was undervaluing the shares. He said on the basis of financial yardsticks used in the PEA, Zazu’s half share in Lik was worth more than double the group's market capitalisation of C$25 million.
He added the balance sheet was strong with no debt and cash of about US$1 million, although forecast capital expenditure of US$352 million was hardly chicken feed.
Zazu isn’t rushing to spend money on a feasibility study, at least not yet, so what could be in the offing if the zinc price continued to rise?
Given the company owns Lik with Teck in a 50-50 venture, with an option to acquire up to 80% if it meets certain cap-ex targets, surely Ford might consider selling to Teck if the opportunity arose?
“I can’t say anything on their behalf, but speaking personally, that would make perfect sense.”
Make of that what you will. |
