Base metals have long been the workhorses of the mining industry, with lower profit margins and less glamour than gold. But since the yellow metal began its downward tumble, analysts have shown renewed interest in metals less likely to be hammered by central banks, speculators and negative market sentiment.
Zinc is widely believed to have the best fundamentals and price outlook of the major non-ferrous metals. However, production is dominated by major companies and state-owned enterprises, making it difficult for juniors to gain a foothold. Hoping to buck that trend is
Analysts from several investment firms are following the company’s progress with keen interest. “The Aljustrel project is a tremendous asset and, in our opinion, potentially a company-maker,” writes Wendell Zerb, a geologist and analyst with Pacific International Securities.
Analysts Michael Westcott and Juan Plessis of Goepel McDermid Securities are equally bullish in their research report. “EuroZinc is a new development stage mining company with an opportunity to become a zinc producer by year-end 2000,” they write. “We expect participants in the zinc mining industry to prosper over the next several years; EuroZinc offers quality ‘small-cap’ exposure to this ‘large-cap’ dominated industry.”
Goepel McDermid recently issued a buy recommendation and set a 12-month target of $2. Pacific International has recommended EuroZinc “for aggressive investors,” with a 12-month target of $1.45. The company currently trades below $1 and has 43 million shares outstanding (62 million fully diluted).
EuroZinc was formed from the recent merger of Auspex Minerals and International Vestor Resources. A past producer situated in the Iberian Pyrite belt, the Aljustrel project hosts four remaining volcanogenic massive sulphide deposits: Moinho, Feitais, Estacao and Gaviao (a fifth has been mined out). Collectively, these deposits contain total resources of 151 million tonnes averaging 0.74% copper, 3.46% zinc and 1.18% lead.
In 1998, minable reserves were calculated for the higher-grade portions of the Moinho and Feitais deposits. These total 17.6 million tonnes averaging 0.3% copper, 5.81% zinc, 2.06% lead and 66 grams silver per tonne. The calculation is based on 72 holes at Feitais, which hosts the bulk (13 million tonnes) of the reserve, and 92 holes at Moinho.
“Perhaps the most attractive aspect of EuroZinc’s opportunity at Aljustrel is the fact that a complete processing facility and mine infrastructure already exist,” note Wescott and Plessis. “In addition to the obvious capital savings, the company should enjoy an expedited preproduction engineering, construction and commissioning period.”
The fully permitted mining complex includes the partially developed Feitas mine, the fully developed Moinho mine, a 1.2-million-tonne-per-year conventional flotation mill and concentrator, rail loading and storage facilities, and a tailings disposal facility. The replacement value is estimated at US$200 million.
To earn its 75% interest, EuroZinc is required to complete a feasibility study (at a cost of US$15 million), provide the capital to place the project back into production ($35 million to $50 million) and repay about $8 million in bank debt from the previous operation.
The Goepel report addresses the problems that plagued the mining complex during its brief operating run from 1991 to 1993, namely low grades and sub-optimal mining and processing methods.
“Understanding why the mining complex was unsuccessful was key to EuroZinc’s identifying its current opportunity,” the firm’s analysts write. “Past mining by the Portuguese mining company was carried out with little regard to economic cutoff grades. As such, high-grade and low-grade zones alike were mined, and the resulting millfeed grade was variable and generally sub-economic. Milling and concentrating circuits had problems with over-grinding the ore, which resulted in low throughput, higher milling costs and lower metal recoveries.”
What does EuroZinc plan to do differently? While the full details won’t be released until the final feasibility study is completed this fall, a prefeasibility study by Rescan Engineering partially answers the question.
A 6,000-tonne-per-day operation is envisioned, with 80% of the mining being carried out by long-hole stoping and 20% by vertical crater retreat. The existing autogenous and pebble grind circuits will be converted into a semi-autogenous mill and ball mill circuit, boosting throughput to 1.5 million tonnes per year from 1.2 million tonnes and eliminating the over-grinding problems of the past. The existing flotation circuit will be set up to produce a zinc concentrate and a silver-bearing lead concentrate.
Cash production costs are estimated at US36 cents per lb. zinc, net of byproducts, based on a zinc price of US55 cents per lb., US25 cents lead, US$5.50 per oz. silver and US$325 per oz. gold.
“It is now evident that the Aljustrel ores contain significant gold, which preliminary studies indicate should be recoverable to the lead concentrate, though further studies are required,” the Goepel McDermid analysts note. “In light of new high-grade copper zones being recovered, a copper circuit may eventually be added.”
In his report, Zerb details recent drilling that led to the discovery of a significant copper zone on the Feitais deposit. Hole 9930 intersected a 40-metre interval assaying 3.05% copper, which included 8.58 metres grading 5.09% copper, whereas hole 9932 returned a 24.5-metre interval assaying 4.46% copper. “Although it is early to suggest this new zone will have the size and grade to affect the project, we believe it solidifies the potential for copper zones that could improve the economics of an already potentially robust operation,” he writes.
Aljustrel is considered to have “excellent” exploration potential near and surrounding the existing deposits.
The adjoining Estacao concession, 60% of which is owned by EuroZinc, hosts a resource of 14 million tonnes grading 0.24% copper, 5.6% zinc, 1.68% lead and 45 grams silver.
“Under a new agreement, EuroZinc can increase its interest from 60% to 75% by completing additional expenditures in the order of $400,000,” Zerb writes. “The Estacao deposit could be quickly developed, should mining expand above the currently planned 1.5 million tonnes per year.”
Goepel McDermid concludes that EuroZinc has “all the attributes we look for in a mining company: credible management with a track record, a focus on metals with favourable price fundamentals; assets in a politically stable area where mining is welcome; manageable capital requirements; quality reserves with upside potential; and a project with competitive production costs.”
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