Teck to buy out Rox at Teena deposit in Australia

After optioning the Reward project from Rox Resources in 2011, and discovering the Teena zinc deposit on the concession in 2013, Teck Resources (TSX: TCK.B; NYSE: TCK) has struck a deal with the Aussie junior to acquire the other 49% stake in the project that it doesn’t already own.

The Teena deposit — 8 km west of Glencore’s McArthur River mine in Australia’s Northern Territory — has the largest and highest-grade zinc-lead resource found in Australia for more than 20 years, Rox Resources says, describing Teena as “the most significant discovery of zinc in Australia since Century in 1990.” (MMG’s Century, Australia’s largest open-pit mine, closed in 2015.) 

Drilling at Teena between 2013 and 2015 uncovered zinc-lead mineralization over thicknesses exceeding 20 metres over a 1.3 km strike length.

In June, Teena reported an inferred resource of 58 million tonnes grading 11.7% zinc and 1.6% lead for 6.5 million contained tonnes zinc and 0.9 million tonnes lead. The June resource estimate used a 6% zinc and lead cut-off grade.

The Reward zinc-lead project in Australia’s Northern Territory. Credit: Rox Resources.

Rox Resources’ managing director, Ian Mulholland, described Teena’s resource in a press release at the time as “world-class,” and said the deposit’s estimated tonnage and grade was “comparable to other giant zinc-lead resources globally.”

He also noted that Teena “has zinc grades as high as operating mines at McArthur River, [Glencore’s] Mt. Isa and previously at Century,” adding that the deposit contains 16.3 billion lb. zinc and lead metal (14.2 billion lb. zinc and 2.1 billion lb. lead), “which in terms of contained metal exceeds the endowments of either the Cannington or the Dugald River deposits.” (Both Cannington and Dugald River are located in Queensland; Cannington is owned by South32 [LSE: S32] and Dugald River by MMG.)

The zinc-lead mineralization at Teena occurs as two subparallel lodes — the thicker and higher-grade Lower Lode and the Upper Lode. At a 6% zinc cut-off grade, the Upper Lode has inferred resources of 45 million tonnes averaging 12% zinc and 1.8% lead, while the Lower Lode has 14 million tonnes grading 8.2% zinc and 1.2% lead.

So far 22 drill holes have been completed at Teena. The first hole was drilled in 1961. The next eight were drilled between 1976 and 1977. No more drilling took place until Teck’s discovery hole in 2013. Since then Teck has completed 14 more drill holes, for 14,700 metres.

Of the 22 holes drilled so far, Rox Resources states, 17 intersected mineralization that was used in the inferred resource.

“It is likely that the mineral resources will grow by more drilling, especially along the margins of the deposit,” Rox Resources stated.

In an email, Teck’s senior communications specialist in Vancouver, Chris Stannell, said the company “is pleased to have the opportunity to consolidate this quality zinc asset, located in one of the world’s premier zinc provinces,” and noted that Teck had earned 51% in the project, with the right to earn up to a 70% interest.

A drill crew at the Teena zinc-lead deposit on the Reward property. Credit: Rox Resources

As of March 31, Teck had spent $13.9 million on the project for its 51% interest, according to Rox Resources.

Under the latest deal, Teck must pay A$10.6 million in cash (or A$8 million in cash and A$3.6 million in freely trading securities) payable on closing, provide a three-year, A$5.3-million interest-bearing promissory note, and another A$3.8 million in cash payable either six years after the closing date, or the completion of a bankable feasibility study.

Teck’s decision to acquire all of Teena coincides with a zinc price that has risen steadily since the start of 2016.

Zinc has been the best performing base metal this year (up 45.3% since January), and analysts at Bank of America and Merrill Lynch Global Research noted in a report released on Oct. 7 that they see “further upside in 2017, on lack of mine supply.”

The analysts have increased their 2016 price target for zinc 3.7% from US$1,987 per tonne, or 90¢ per lb., to US$2,061 per tonne, or 93¢ per lb. zinc.

Bank of America Merrill Lynch has raised its 2017 zinc price forecast 13.3% to US$2,575 per tonne, or $1.17 per lb., up from its previous forecast of US$2,273 per tonne, or $1.03 per lb. zinc.

“Capital expenses on lead and zinc facilities remains subdued for a host of reasons, suggesting that the bull market, especially in zinc, is structural,” the report stated, adding that between April 2008 and October 2015, zinc and lead saw “some of the lowest production expansion in years.”

The research report stated that “zinc has been the outperformer in the base metals complex, as structural shortfalls in mine supply have pushed the refined market into deficit. The mine project pipeline remains relatively empty, partly because few miners focus on zinc, suggesting that prices may see further upside. Galvanized steel producers are key zinc buyers, and even if China’s steel industry may be under pressure … there is pent-up demand in the country, suggesting the country’s zinc off-take may not fall off a cliff.”

In terms of its geology, the Teena mineralization style is similar to that at the McArthur River zinc-lead mine, Rox Resources says, and like McArthur River, the zinc-lead sulphide mineralization is hosted by the HYC Shale Member of the Barney Creek Foundation.

While no definitive metallurgical test work has been carried out, Rox Resources said, preliminary testing produced a potentially saleable zinc concentrate (plus 50% zinc), with a low lead content. The results for lead recovery into a separate concentrate were inconclusive, the junior reported, and more test work is required.