It has been several years since Zazu Metals Corp. has made any significant investments in its Lik zinc-lead-silver project in Northwest Alaska, a situation that is threatening the company’s eligibility to be listed on the Toronto Stock Exchange.
According to exchange rules, a company must spend at least C$350,000 on its core projects during the previous year to be eligible to continue listing its shares on the TSX. Zazu, however, has reined in its cash outlay until zinc prices rise and global mining markets improve.
“Due to poor market conditions Zazu management decided to cut back on any development expenses that could be deferred. For that reason only ongoing studies required to advance permitting were included in the budget. These studies were inexpensive; consequently, the company did not meet the minimum annual expenditures,” explained Zazu CEO Gil Atzmon.
Zinc prices started the year soft, dipping below US70 cents per pound in January, before rallying to climb above US94 cents/lb. earlier this month.
Goldman Sachs Group Inc. sees zinc prices continuing to rise due to a shortage of supply.
The New York-based investment bank forecasts that demand for refined zinc will outstrip supply by 114,000 tons this year, a shortage that is expected to more than triple, to 360,000 tons next year.
“Zinc has by far the most bullish supply-side dynamic,” the bank wrote in a May report.
Zazu has long considered Lik as a potential mine to help fill this zinc shortage that has been predicted for several years.
In 2014, the company published a preliminary economic assessment for developing a mine at Lik, which is located about 14 miles from Teck Resources’ Red Dog Mine.
As modeled, a 5,500 metric-ton-per-day mill processing ore from an open-pit mine at Lik South, one of two deposits that make up the project, would produce 234,000 dry metric tons of zinc concentrate and 55,800 dry metric tons of lead concentrate annually over an initial nine-year mine life.
In total, 17.1 million metric tons of ore milled at an average grade of 7.7 percent zinc, 2.6 percent lead and 47 grams per metric tons silver is expected from the Lik South open pit.
The PEA does not consider Lik North, a contiguous deposit that would be mined using underground methods if economics proved viable.
Lik has the advantage of being situated near the Delong Mountain Transportation System, a state-owned haul road and concentrate-shipping port servicing the Red Dog Mine.
Alaska Industrial Development and Export Authority, the state entity that owns the road and port, has conducted analysis on the construction of a 19-mile (30 kilometers) extension to the road and any port modification requirements to accommodate Lik.
AIDEA identified a number of benefits to developing the road if a mine at Lik is developed, including: extending the use of the existing road and port, which would lengthen the cash-flow to the state and generate more money for the Northwest Arctic Borough; and the mine would be another source of jobs for the region.
Following the completion of the PEA, Zazu initiated several studies in preparation for permitting.
“These studies were nearing conclusion in 2015. However, in light of market conditions in early 2015, Zazu management determined to support only ‘mission critical’ studies with the remainder temporarily suspended,” the company explained in a quarterly financial report published in May.
Zazu went on to say these “studies can be re-initiated in a short timeframe.”
The company, which has until Oct. 12 to demonstrate TSX listing compliance, said it will be working with the exchange throughout the review process and expects to formulate a plan to satisfy the requirements.
“Zazu plans to engage in a more active program this season and expects to meet the minimum expenditures prior to the end of the TSX review,” Atzmon said.
Teck and Zazu are currently 50 percent joint venture partners in Lik. Zazu has the right to increase its ownership to 80 percent by meeting certain spending commitments by 2018.
