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Vol. 19, No. 21 Week of May 25, 2014
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Outlook galvanizes northern zinc sector

Looming zinc deficit is spurring renewed love for projects in Alaska’s Red Dog District, western Canada’s zinc-rich Selwyn Basin

Shane Lasley

Mining News

The languishing price of zinc has provided little incentive for investors to embrace companies seeking to explore and develop the next generation of mines that produce this essential metal. However, an expected 1.5 million metric tons of supply being lost to mine closures by 2016 is beginning to galvanize the zinc sector.

“In the case of zinc, this is a metal that's been unloved for a long time. As a result there has been very little investment put into the industry. Due to this, there have been very few discoveries of new zinc deposits in the last couple of decades. Now we are running into the situation where mines that have been in operation for decades are finally starting to run out of reserves, and we haven't found anything to replace them, so we are potentially going to see the zinc market going into a deficit in terms of metal available on the market. So I think zinc is the one that’ s poised for some of the best upside,” Adam Low, a metals and mining analyst with Raymond James & Associates, Inc., said during a recent interview with The Wall Street Transcript.

Falling stockpiles and rising zinc prices is welcome news for owners of the Red Dog Mine and a number of exploration and early development zinc projects in Alaska and Canada’s North.

Decades of Red Dog

While several pillars of global zinc supply are shuttering operations, one of the largest, the Red Dog Mine, has plenty of high-grade reserves to last until 2025 and a number of prospects that will likely extend the mine decades further into the 21st Century.

This Northwest Alaska operation, which currently supplies more than four percent of the world’s zinc needs, produced 551,300 metric tons (1.215 billion pounds) of the galvanizing metal during 2013.

Teck Resources Ltd., which owns and operates the Red Dog Mine, pays a 30 percent net proceeds royalty to NANA Regional Corp., a Native corporation representing the Iñupiat of Northwest Alaska. Despite flagging zinc prices, this royalty payment was US$120 million in 2013. NANA’s royalty increases five percent every five years and its next rise is due at the end of 2017.

At the end of 2013, Red Dog had 45.4 million metric tons of ore in reserve averaging 15.8 percent (6.05 million metric tons) zinc, 4.1 percent (1.86 million metric tons) lead and 72.6 grams per metric ton (106 million ounces) silver.

Additionally, the property has 7.5 million metric tons of indicated resources averaging 25.7 percent zinc for 1.93 million metric tons 6.9 percent lead and 137 g/t silver.

Teck is also finding high-grade zinc on the Noatak property, a large block of state of Alaska mining claims immediately west and north of the NANA-owned lands where the Red Dog Mine is located.

Anarraaq-Aktigiruq, situated roughly eight miles (13 kilometers) northwest of the current operations, is among the high-quality targets Teck is pursuing on the Noatak claims. Teck discovered the deposit in 1999, subsequently establishing an inferred resource of about 19 million tons grading 15.8 percent zinc, 4.8 percent lead, and 2.1 oz/t silver. Highlights from drilling at Anarraqq include 23 meters averaging 18.1 percent zinc and 5.9 percent lead; and 9.3 meters averaging 25.9 percent zinc and 2.9 percent lead.

Teck said exploration programs will continue in these regions during 2014.

Though Red Dog has ample reserves and prospects to expand the operation, Teck does not have current plans to significantly increase the mine’s output to fill the anticipated zinc supply deficit. The company says a required port expansion and short shipping season complicates expansion of the Northwest Alaska operation.

“At a certain concentrate level, the port becomes the limiting constraint at Red Dog,” Teck Senior Vice President of Zinc Rob Scott explained to investors during an Apr. 22 conference call.

Teck leaders said expansion of the Northwest Alaska mine would require more capital and a longer lead time than ratcheting up operations at its already permitted Pend Oreille Mine in northeastern Washington State. This underground mine, which has the capacity to produce about 44,000 metric tons of zinc in concentrate per year, is expected to take about seven months to ready for operations and a further five months to ramp up to full production.

Though Teck is not enlarging the mill at Red Dog, the company is working to maximize throughput. During 2013, a record 3.85 million metric of ore was processed at the mine and further increases are continuing into 2014.

During the first quarter, zinc production at Red Dog rose 19 percent compared to the first three months of last year. Teck attributes the increased production to the processing of softer ores, which substantially boosted the tons milled during the period. The uptick was partially offset by lower zinc ore grades.

Teck anticipates it will produce between 500,000 and 525,000 metric tons of zinc at Red Dog in 2014.

More NW Alaska zinc

Red Dog is not the only zinc opportunity in Northwest Alaska – Teck and Zazu Metals’ Lik deposit is in the advanced stages of exploration and Millrock Resources has staked an expansive block of claims in Northwest Alaska that is prospective for large-scale zinc-lead-silver deposits.

Zazu, which has long considered Lik as a potential mine to help fill the expected zinc shortage, has been gradually advancing the project towards a production decision.

“A consolidation in the zinc industry is definitely under way,” Zazu Metals CEO Gil Atzmon foretold in 2011. “Zazu’s goal is to have the Lik deposit in operation in time to deliver into this supply deficit.”

Located roughly 14 miles (22 kilometers) northwest of Red Dog, Lik stands to benefit from the Delong Mountain Transportation System, a state-owned haul road and concentrate-shipping port that links Red Dog to world markets.

Under a 2010 agreement that was renewed in 2013, Alaska Industrial Development and Export Authority, owner of the transportation system, is evaluating the possibility of financing a 20-mile (32 kilometers) spur road linking Lik to the existing road and upgrading the port facilities to handle additional traffic created from Lik’s development.

Port site modifications would include an additional concentrate storage building, fuel storage, a camp extension, upgraded generation capacity, an expanded shallow water dock, and modifications to the existing ship loader, or if necessary, a new ship loader.

Lik is divided into two deposits separated by a fault – the near-surface Lik South and the deeper Lik North. Lik South has an indicated resource of 18.74 million metric tons grading 8.08 percent zinc, 2.62 percent lead and 52.8 grams-per-metric-ton silver; plus an inferred resource of 1.23 million metric tons grading 6.80 percent zinc, 2.12 percent lead and 35 g/t silver. Lik North contains an additional inferred resource of 5.18 million metric tons grading 9.65 percent zinc, 3.25 percent lead and 51 g/t silver.

Earlier this year, JDS Energy and Mining Inc. updated a preliminary economic assessment for Lik South.

As modeled, a 5,500 metric-ton-per-day mill processing ore from an open pit mine at Lik South would produce 234,000 dry metric tons of zinc concentrate and 55,800 dry metric tons of lead concentrate per year.

Over a nine-year mine-life, roughly 17.1 million metric tons of ore at an average grade of 7.7 percent zinc, 2.6 percent lead and 47 grams per metric tons silver is anticipated to be milled from the Lik South open pit.

The PEA estimates a total capital cost of C$352 million including a 20 percent contingency for a 2 million metric-ton-per-year mine and mill with an initial nine-year mine life. Using a zinc price of US92 cents per pound, the study estimates a post-tax internal rate of return of 9.7 percent and a post-tax net present value (8 percent discount) of C$25 million.

Bumping the zinc price to US$1.00 per pound, the post-tax IRR climbs to 13.4 percent and NPV (8 percent discount) jumps to C$148 million for mining Lik South.

Teck currently holds a 50 percent joint venture in Lik, though Zazu has the right to increase its stake to 80 percent by spending US$25 million on the project by 2018.

Spurred by growing interest in zinc, Millrock has staked Lisburne, a grassroots zinc prospect some 85 miles (140 kilometers) northwest of Red Dog.

“We have seen an increasing interest in zinc from mining and smelting companies. We can see the potential for zinc shortages and price increases in the medium to long term and therefore have decided to act on this conceptual target,” said Millrock President and CEO Greg Beischer.

Situated on the coast of the Chukchi Sea some 12 miles (20 kilometers) south of Cape Lisburne, the 13,100-acre (5,300 hectares) Lisburne property blankets a region dominated by carbonate rocks of the Mississippian Lisburne Formation, the same formation where the sediment hosted zinc mineralization typically occurs in the Red Dog district.

Millrock Chief Exploration Officer Phil St. George said, “Red Dog is truly a world-class zinc mine. We feel there is excellent potential to discover similar deposits on our claim block. Our claims have strong zinc and barium anomalies in areas that are underlain by Red Dog time-equivalent stratigraphy. Our geologists have extensive geologic knowledge of the Red Dog region rocks and are familiar with the most effective exploration techniques for the deposit type. Our local experience will allow for efficient exploration and will hopefully lead to discovery of any zinc-lead-silver deposits that may exist in this area.”

Typical to its project generator business model, Millrock is seeking a partner to advance this prospective zinc discovery.

“We will be looking for a strategic partner to advance the project to the drilling stage,” Beischer said upon announcing the addition of Lisburne to Millrock’s portfolio.

Prairie Creek ready

Canadian Zinc Corp. has permits in hand and the majority of the required infrastructure in place to put the Prairie Creek Mine into production, positioning this project to stream some 76 million pounds of zinc, along with 90 million pounds of lead and 2.2 million ounces of silver, per year into global markets.

Located in the South Mackenzie Mountains of western Northwest Territories – about midway between Whitehorse, Yukon, and Yellowknife, NWT – Prairie Creek contains a mineral reserve of 5.2 million metric tons averaging 9.4 percent zinc, 9.5 percent lead and 151 grams per metric ton silver. This is enough ore for an 11-year mine-life.

In addition, the partially developed zinc project hosts an inferred resource of 6.2 million metric tons averaging 14.5 percent zinc, 11.5 percent lead, 0.57 percent copper and 229 g/t silver.

Canadian Zinc’s primary objective is to bring the Prairie Creek zinc-lead-silver mine into production at the earliest opportunity.

The company already has a 1,000-metric-ton-per-day mill, five kilometers (three miles) of underground workings, underground equipment, a heavy and light duty surface fleet, three drill rigs and a 1,000-meter airstrip at the advanced stage project.

Canadian Zinc is currently undertaking an optimization study. The company has hired Tetra Tech to assist with basic engineering and procurement services associated with optimizing Prairie Creek. AMC Consultants has been engaged to undertake a geotechnical study of the underground mine plan with a view to reducing the initial development, shortening the development schedule and optimizing mine operating costs.

The studies are scheduled to be completed by mid-2014 and, dependent on the progress of financing strategies concurrently being executed, Canadian Zinc plans to begin ordering long lead time items; building the access road; preparing the mine site and completing other startup activities on site.

The company, meanwhile, is evaluating strategies for raising funds necessary to complete development of the Prairie Creek Mine. In May 2013, the company raised US$10 million through the sale of a royalty to Sandstorm and granted Sandstorm a right of first refusal on any future royalty or stream financing for the Prairie Creek project. Under the agreement, Canadian Zinc can repurchase the royalty if it enters into a metal stream financing under which Sandstorm will provide an upfront deposit of not less than US$90 million to be used to finance part of the capital cost to develop the Prairie Creek Mine.

Ambitious Selwyn plan

Roughly 375 kilometers (230 miles) west of Prairie Creek, a southern China-based mining and smelting company is advancing Selwyn, one of the world’s largest undeveloped zinc deposits, towards production.

After spending several years proving the potential of this enormous zinc project in eastern Yukon Territory, junior miner Selwyn Resources Ltd. attracted Yunnan Chihong Zinc & Germanium Co. Ltd., which invested C$100 million to earn a 50 percent interest in the project. Three years later Selwyn Chihong Mining Ltd., a Canadian subsidiary of Yunnan Chihong Zinc & Germanium, bought the other half of the project from Selwyn Resources for C$50 million in cash.

According to a 2012 calculation, the Selwyn project has an indicated resource of 185.57 million metric tons averaging 5.2 percent (21.26 billion pounds) zinc and 1.79 percent (7.3 billion lbs.) lead, and an inferred resource of 237.86 million metric tons averaging 4.47 percent (23.45 billion lbs.) zinc and 1.38 percent (7.22 billion lbs.) lead.

With the goal of putting a mine into production in 2020, Selwyn Chihong has budgeted C$56 million to advance the enormous zinc project in 2014.

Though earlier studies considered an underground mine, Selwyn Chihong believes a larger scale open-pit mine with a 25,000-metric-ton-per-day mill might be a better fit for the enormous eastern Yukon zinc project.

With the goal of gaining the geological information needed to support this more ambitious zinc mine, the Chinese mining company plans to invest some C$22 million of its 2014 budget in a 55,000-meter drill program that targets seven of the 15 known mineralized zones at Selwyn.

Another C$13 million will be spent on upgrading the Howard’s Pass Road, an access road that links the Selwyn project to Yukon Territory’s contiguous road system.

Selwyn Chihong Mining also must identify a port for transporting the zinc concentrates to overseas smelters. Any chosen port site, either in Southeast Alaska or British Columbia, would need to be expanded to handle the anticipated zinc and lead concentrates produced at Selwyn.

The company is also considering its fuel options with an eye on sourcing liquefied natural gas.

All of this year’s work will support a bankable feasibility study due to be completed around the middle of 2015.

Yukon zinc supplement

Yukon has two established but beleaguered volcanogenic massive sulfide mines that would benefit from a supplement of higher zinc prices. Yukon Zinc Corp.’s Wolverine Mine produces zinc along with healthy portions of silver, copper, gold and lead. Alexco Resource Corp.’s Bellekeno Mine, on the other hand, is primarily a silver producer that benefits from a substantial dose of zinc as a by-product of the VMS mineralization found there.

Yukon Zinc, which has had difficulties maintaining the 1,700-metric-ton-per-day designed capacity since firing up the mill at Wolverine in 2010, reduced its operations at the silver-rich VMS mine to 60 percent output in early July. The company began ramping up to 75 percent capacity, around 1,200 tpd, in October.

“This production increase is based on many factors including positive mine grades and mill recoveries, successful implementation of cost efficiencies, as well as a more stable silver metal price,” explained Yukon Zinc President and CEO Jing You Lu.

Reaffirming its commitment to operating safely and responsibly, Yukon Zinc said it plans on sustaining the 75 percent output level until the economics at Wolverine or within the metal markets change.

Weak silver prices convinced Alexco to shut down milling at its Bellekeno silver-zinc-lead mine for this past winter. In mid-May, the company announced that it is working towards a potential restart at the high-grade mine in the historic Keno Hills Mining District.

Alexco President and Chief Operating Officer Clynt Nauman said, “Our focus during the first quarter and at the present time is on working through the critical factors that will result in a ‘go’ decision on restarting production at our Keno Hill property in the Yukon. We don’t quite have all the components in place yet, but clearly a major factor in lowering our costs will be to develop additional throughput volume for the mill. Our newest discovery – the Flame & Moth deposit – will be key to accomplishing this goal.”

Flame & Moth has an indicated resource of 1.38 million metric tons averaging 516 g/t silver, 5.7 percent zinc and 1.7 percent lead.

During the abbreviated 2013 operations, the Bellekeno Mine produced 1.4 million ounces of silver, 10.3 million pounds of lead and 3.4 million pounds of zinc.

Teck-Korea Zinc revisit Cirque

The Kechika Trough of northern British Columbia – a southerly extension of the belt of rocks that hosts the Selwyn, Bellekeno and Wolverine projects – is home to a number of zinc-rich deposits that hold the potential to supply future global zinc needs.

For around two decades a 50-50 joint venture between Teck and Korea Zinc Co. has been investigating zinc prospects in both the Selwyn Basin and Kechika Trough.

In 2013, the zinc seeking partners cut a deal with Canada Zinc Metals Corp. to explore the Pie, Yuen and Cirque East properties in northern British Columbia. Under the agreement, Teck and Korea Zinc could earn up to a 70 percent interest in the properties by investing C$8.5 million in them by 2019.

With a 2014 budget that will top the C$500,00 first year minimum, the joint venture partners plan to complete targeted geological mapping, selective rock and soil sampling on high priority targets, core re-logging and sampling from historical Pie and Yuen drill core, and potentially geophysical surveys.

Additionally, Teck bought 1.25 million units of Canada Zinc (each unit consists of one share and one purchase warrant) for C$500,000.

The Pie, Cirque East and Yuen properties lie adjacent to Teck and Korea Zinc’s Cirque project.

Mineable reserves at Cirque are reported to total 22.1 million metric tons grading 9.4 percent (4.6 billion pounds) zinc, 2.8 percent (1.4 billion) lead and 60 g/t (42.6 million ounces) silver.

In its exploration and mining summary, the British Columbia Ministry of Energy and Mines reports that Teck re-established the camp at Cirque and drilled deep targets at the property during 2013.

For 2014, Canada Zinc will focus its own exploration on Cardiac Creek deposit of its Akie property, located immediately southeast of the properties optioned to Teck and Korea Zinc.

“Results from the 2013 drilling on Cardiac Creek represent expansion of the known mineralization. We believe targeted drilling this season on the deposit will also further increase the dimensions and level of confidence in the resource which will ultimately assist in planning subsequent stages of exploration and potential developments at Akie,” Canada Zinc President and CEO Peeyush Varshney said during a May 12 announcement.

Cardiac Creek hosts an indicated resource of 12.7 million metric tons grading 8.4 percent (2.4 billion pounds) zinc, 1.7 percent (472 million pounds) lead and 13.7 g/t (5.6 million ounces) silver (at a 5 percent zinc cut-off grade) and an inferred resource of 16.3 million metric tons grading 7.4 percent (2.6 billion pounds) zinc, 1.3 percent (482 million pounds) lead and 11.6 g/t (6.1 million ounces) silver.

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