Good news today! Group Eleven Resources (G11) our private Irish exploration company has a new partner. G11 got a shot in the arm with half of its second-round financing of CDN$1.5 million coming in from MAG Silver Corp (MAG). The financing was over-subscribed.
If anyone knows what it takes to make major discoveries it must be MAG. MAG has a current market capitalization of CDN$1.7 billion. MAG’s flagship property is the Juanicipio silver project in Mexico. Juanicipio is 44% owned by MAG and 56% owned by Fresnillo plc. Juanicipio is one of the richest, undeveloped silver deposits in the world. MAG discovered Juanicipio and it is now in development. Initial cash should flow in 2018. It is great to have with MAG’s support for G11 exploration in Ireland. MAG is a highly successful and respected group which certainly understands exploration.
G11 has a large exploration project portfolio in Ireland. It recently acquired extensive exploration ground around the old Silvermines zinc-lead mine. Silvermines closed in 1982. As the name of the local village implies it is also a district of historic silver-rich galena mining. In 1860 A.B. Wynne reported that the Dunalley family had worked the mines on and off since 1720. J. Rutty records 80 ounces of silver to the tonne of lead from Silvermines. Most likely this rich ore came from the nearby Shallee Mine. This was the richest tenor reported from Irish mine. Once they taught us in school that Ireland lacked a metal endowment of any consequence. Later, through the vision of one man the Midland zinc orefield became one of the richest zinc districts in the world – acre for acre.
Zinc mines are usually underground operations and generally small relative to copper mines. There has been little supply-side response to much higher zinc prices since the start of the year. There has been some supply coming into warehouses from darker corners. But focus on smelter treatment charges which have fallen. Smelters are starting to struggle to find concentrate supply. We will need $3,000 per tonne to bring new mines into production. Why? Because they have anaemic average grades of only 5.5% zinc. Within this small cluster of new zinc mines there is an outlier at 11% zinc so the rest of the crop averages only 4% zinc!
Within the top 20 zinc development projects the largest is Mehdiabad in Iran and the richest is Kipushi in the Congo. This top twenty is based on contained zinc in measured and indicated resources. Kipushi has super grades but is very deep and is landlocked in the heart of Africa. Apart from Iran and the Congo one of the top 20 is in such interesting jurisdictions as Algeria, Indonesia and Kazakhstan. One zinc project is in northern Greenland. Climate records for Citronen show there is a chance of being iced in during the shipping season. – the mine could miss out on a whole year of revenue. One of the 20 is Los Frailles in Aznalcóllar near Seville in Southern Spain. It has a history and is an environmental hot potato. If anyone thinks Selwyn in Canada will ever be mined then they know where to contact me.
There is a short-list in the probable and possible zinc development projects with large inferred resources. There is Glencore’s Pallasgreen zinc-lead deposit near Limerick in Ireland. The centre-of-gravity for this deposit is at a depth of 550 metres. There has been no drilling at Pallasgreen since 2014. The Taylor Deposit of Arizona Mining is also deep. It will likely miss this cycle as permitting is never easy in Arizona. Rathdowney’s Olza zinc deposit in southern Poland. The deposit is shallow and only a short rail distance to a smelter in the heart of Europe. But it does seem very quiet over there since I moved on in late 2013. All three of these large zinc inferred resources have average grades below 10% combined (Zn + Pb).
The zinc squeeze is starting to happen and end users have not felt the pinch yet. China produced 4.9 million tonnes of zinc in 2015 or about 37% of global annual production. China consumes about 45% of global mine supply. The 600,000 tonnes China imported last year is gone. China had a 375,000 to 390,000 tonne surplus inventory at the start of the year. Some 200,000 tonnes are gone and so now it is down to 130,000 to 140,000 tons (low quality).
Teck can’t produce more zinc in the medium term and would take five years to do an expansion. In the US there has been no sustaining capital investment in zinc mines for the past one to two years. Nyrstar, the world’s largest zinc refiner, sold off its zinc mines earlier in the year. It was unable to sustain them at a profit. Zinc end-users should not concern themselves about the long term. Rather they should be anxious in medium term and fret in the short term – the next four to six months. The other option is just to live and be mindful in the present. Take the advice of a Persian poet “the future and the past veil God from you. Burn both of them with fire”