Several years after its discovery, Tinka Resources (TSXV: TK) has delivered a preliminary economic assessment (PEA) on the zinc sulphide deposit at its wholly-owned Ayawilca project, 200 km northeast of Lima in central Peru.
The PEA tables a $363 million after-tax net present value (NPV), with an 8% discount rate, and a 27.1% after-tax internal rate of return on the zinc sulphide deposit, along with a 3.1-year, after-tax payback period. Initial capex to build the project is pegged at $262 million (including $45 million for contingencies), and sustaining capex over the planned 21-year mine life is an estimated $144 million.
The study assumes $1.20 per lb. zinc, $18 per oz. silver and 95¢ per lb. lead. At press time, spot metal prices are lower at $1.10 per lb. zinc and $16.40 per oz. silver. An after-tax NPV sensitivity graph provided with Tinka’s PEA news indicates that zinc price and feed grades affect valuation (90% of the net smelter return value is in zinc). At the $1.10 per lb. zinc price, Ayawilca’s after-tax, NPV-8 drops 25% to the $270 million level, illustrating the project’s strong leverage to the zinc price.
Tinka’s PEA envisions a 5,000-tonne-per-day, ramp-accessed underground operation and average annual output of 101,000 tonnes zinc-in-concentrate, and 906,000 oz. silver in silver-lead concentrate. Average head grades are 6.05% zinc, 18.3 grams silver per tonne, 67.1 grams indium per tonne and 0.25% lead.
Drill rigs at Tinka Resources’ Ayawilca polymetallic property in central Peru. Photo: Tinka Resources.
Graham Carman, Tinka’s president and CEO, described Ayawilca Zinc as “shaping up to be one of the best new zinc development projects in the Americas, with strong economics and a long mine life of over 20 years.”
On top of the main payable metals of zinc, lead and silver in the Ayawilca zinc deposit, indium grades could constitute a payable by-product credit in the zinc concentrate. The PEA assumes a $20-per-tonne credit in the zinc concentrate. Indium is a silvery-white metal used in the semi-conductor industry that was $175 per kilogram at press time.
Metallurgical test results show 92% for zinc at a 50% zinc concentrate grade using standard flotation processes. Zinc concentrate quality showed that any potentially deleterious elements come in below standard smelter penalty levels. A minor penalty for elevated iron content in the zinc concentrate was noted, but is common in the region, due to the nature of the zinc mineralization. Testing also shows lead and silver recoveries at 85% to produce a 50% lead concentrate, with 2,750 to 5,930 grams per tonne silver.
The company says roughly half the tailings will be thickened and sent to a surface-tailings storage facility, and the rest mixed with cement as structural backfill in underground operations.
Since acquiring its land position at Ayawilca in 2005, Tinka’s mining concessions constitute over 150 sq. km in the Central Peruvian Polymetallic Belt. Initially, only silver oxide mineralization was known on the project (the Colquipucro zone), but the company’s 2012 drill program hit zinc-bearing, carbonate-replacement-style mineralization in the limestone units that underlay the sandstones hosting the silver oxide zone.
Tinka Resources’ Colquipucro silver oxide project in Peru. Credit: Tinka Resources.
To date, 67,000 metres of drilling has targeted the Ayawilca Zinc Zone, and has delineated an indicated mineral resource of 11.7 million tonnes at 6.9% zinc, 0.16% lead, 84 grams indium per tonne and 15 grams silver per tonne containing 1.8 billion lb. zinc, 42 million lb. lead, 983 tonnes indium and 5.8 million oz. silver. The deposit also has an inferred mineral resource of 45 million tonnes at 5.6% zinc, 0.23% lead, 67 grams indium per tonne, and 17 grams silver per tonne containing 5.6 billion lb. zinc, 230 million lb. lead, 3,003 tonnes indium and 25 million oz. silver.
Outside of its zinc deposit, Tinka has also outlined a tin mineralization zone at the project. The Ayawilca Tin Zone has inferred resources of 14.5 million tonnes at 0.63% tin, 0.21% copper and 18 grams silver per tonne for 201 million contained lb. tin, 67 million lb. copper and 8 million oz. silver.
Tinka says opportunities to improve the PEA economics include: mining the higher-grade zinc mineralization earlier, finding additional high-grade zinc mineralization, reviewing the mining method and scale of the potential operation, and improving metallurgical recoveries for tin, while incorporating tin resources into the economics.
“With a current mine life of 21 years, the company has succeeded in providing a sizable resource, able to potentially benefit from multiple commodity cycles,” notes Ian Parkinson, a mining analyst at GMP Securities. “The largest driver ahead continues to be via the drill bit, in order to capitalize on higher-grade material. Significant exploration potential remains, with the Zinc Zone resource open in several directions.”
The company’s major shareholders include Sentient Equity Partners (24%), International Finance Corporation–World Bank (11%) and JPMorgan UK (7 %).
Tinka shares sold off on the July 2 news release of the Ayawilca PEA, closing down 15% to 27¢ (Canadian) per share. Subsequently, the shares have sold down even further in light of weakened base metal investor sentiment to close at 18.5¢ (Canadian) per share, which gives the company a C$49 million market capitalization, based on its 264.6 million shares issued and outstanding. The company’s balance sheet shows C$11 million in cash at the end of the first quarter, and just over C$550,000 in liabilities.
— Steve Stakiw is a geologist and former Western editor for The Northern Miner. Most recently, he has spent over 10 years in a senior role with a zinc-focused, base metals producer with operations on three continents.
(This story first appeared in the August 5 edition of The Northern Miner)