Dr. Graham Carman reports
TINKA REPORTS POSITIVE PEA FOR THE AYAWILCA ZINC PROJECT AFTER-TAX NPV8% OF US$363M AND IRR OF 27% INITIAL CAPEX OF US$262M
Tinka Resources Ltd. has released positive results from the preliminary economic assessment (PEA) prepared for its 100-per-cent-owned Ayawilca zinc zone project in central Peru. The PEA was prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects by Amec Foster Wheeler Peru SA (Wood) as principal consultant, Transmin Metallurgical Consultants and RPA Inc. The PEA provides the initial economic assessment for an underground ramp access mine development with a 5,000-tonne-per-day processing plant.
- After-tax NPV8 (net present value at an 8-per-cent discount) of $363-million (U.S.) and pretax NPV8 of $609-million (U.S.) using metal prices of $1.20 (U.S.)/pound zinc, $18 (U.S.)/ounce silver and 95 U.S. cents/pound lead on a 100-per-cent equity basis;
- Initial capex of $262-million (U.S.) with after-tax IRR (internal rate of return) of 27.1 per cent and pretax IRR of 37.2 per cent;
- 21-year mine life with average head grades of 6.05 per cent zinc, 18.3 grams per tonne silver, 67.1 g/t indium and 0.25 per cent lead;
- Average annual production of approximately 101,000 tonnes of zinc recovered in concentrate and approximately 906,000 ounces of silver in a silver-lead concentrate;
- Leverage to zinc price: 20-per-cent increase in zinc price increases after-tax NPV8 to $606-million (U.S.);
- Numerous opportunities identified for potential economic improvement and exploration upside.
The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the preliminary economic assessment will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
Tinka's president and chief executive officer, Dr. Graham Carman, stated: "We are very pleased with the results of the PEA, which is based on a mid-sized underground mining case of 5,000 tonnes per day and relatively modest initial capital. The PEA shows that the Ayawilca zinc project, which is located in one of the world's most prolific polymetallic belts, is 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. The excellent PEA results are a major milestone and justify the continued advancement of Ayawilca towards production while exploration drilling is continuing with the aim of discovering additional high-grade zinc resources."
Financial summary Pretax After tax
NPV (8% discount rate) $609-million (U.S.) $363-million (U.S.)
IRR 37.2% 27.1%
Payback period 2.2 years 3.1 years
Preproduction capital expenditure (capex) (1) $261.9-million (U.S.)
Sustaining capex $144.6-million (U.S.)
Life of mine (LOM) capex $406.5-million (U.S.)
Closure cost (5.0% of LOM capex) $20.3-million (U.S.)
(1) Includes contingencies of $45-million (U.S.).
Processing plant throughput 5,000 t/day
Average annual zinc concentrate production 201,500 dmt/year
Average annual lead-silver concentrate production 7,570 dmt/year
Average annual silver in lead concentrate 905,700 oz/year
Net smelter return from zinc and lead concentrates $4,002-million (U.S.)
Mining costs $36.66 (U.S.)/t
Processing costs $6.44 (U.S.)/t
G&A costs $5.48 (U.S.)/t
Total operating costs (opex) $48.57 (U.S.)/t
Dmt: dry metric tonne.
METAL PRICES AND EXCHANGE RATE ASSUMPTIONS
Zinc price $1.20 (U.S.)/lb
Lead price 95 U.S. cents/lb
Silver price $18 (U.S.)/oz
NSR cut-off value $65 (U.S.)/t
Exchange rate -- Peruvian sol/USD 3.3
Total material processed (LOM) 38.2 million tonnes
Mine life 21.1 years
mine plan -- 5,000-tonne-per-day underground mining operation
The PEA for the Ayawilca zinc zone is based on an underground mine operating at a mining rate of 5,000 tonnes per day for a mine life of 21.1 years. For the purposes of the PEA, production is assumed to commence in 2023 following 18 months of construction and commissioning. This initial mine plan is based on mining a total of 8.4 million tonnes of indicated resources (grading 6.95 per cent Zn, 0.18 per cent Pb and 15.8 g/t Ag) plus 29.8 million tonnes of inferred resources (grading 5.79 per cent Zn, 0.27 per cent Pb and 19.0 g/t Ag) over the life of mine (LOM) using an NSR cut-off value of $65 (U.S.)/t (of the 11.7-million-tonne indicated and 45.0-million-tonne inferred resources at a $55 (U.S.)/t NSR cut-off value). The zinc-rich mill feed will be trucked to the surface via a one-way traffic ramp system connecting two mine portals to the underground infrastructure and accessing production areas starting at West and South Ayawilca.
Processing of the zinc mineralization will be through a standard crushing and grinding circuit followed by froth flotation, concentrate thickening and filtration. The mine operation will produce two concentrates: a zinc concentrate which is anticipated to assay 50 per cent zinc based on metallurgical testwork; and a lead concentrate which is anticipated to assay 50 per cent lead and between 2,750 and 5,930 g/t silver (calculated on assays and based on similar base metal operations). About half of the tailings will be thickened and sent to a surface tailings storage facility, while the remainder will be mixed with cement and used as structural backfill in the underground operations.
Based on preliminary mine plan analysis including resource geometry, the scale of the deposit and grade distribution, room and pillar (R&P) and post and pillar mining (P&P) methods were selected.
The estimated operating costs, over the life of the project, are as shown in the associated table.
OPERATING COSTS PER MINING METHOD (OPEX)
Description Cost per tonne processed
Mining -- room and pillar $38.06 (U.S.)
Mining -- post and pillar $35.29 (U.S.)
Average mining cost $36.66 (U.S.)
Process plant $6.44 (U.S.)
G&A ($10-million (U.S.)/year) $5.48 (U.S.)
Total operating cost $48.58 (U.S.)
The major components of the initial capital expenditures of $261.9-million (U.S.) include $76.3-million (U.S.) for the processing plant, $34.3-million (U.S.) for on-site infrastructure, $43.1-million (U.S.) for mine equipment and underground preproduction development, $14.7-million (U.S.) for off-site infrastructure, and $6.7-million (U.S.) for a starter tailings storage facility direct costs. Contingencies in the capital costs total $44.5-million (U.S.). The major components of sustaining capital are $109.7-million (U.S.) for mining equipment and underground development, and $34.9-million (U.S.) for tailings management over the 21.1-year mine life.
Capital cost item Initial Sustaining Total
(US$ M) (US$ M) (US$ M)
Mining and mine development 43.1 109.7 152.8
Process plant 76.3 - 76.3
On-site infrastructure 34.3 - 34.3
Off-site infrastructure 14.7 - 14.7
Tailings storage facility 6.7 34.9 41.6
Indirect and owner costs 42.3 - 42.3
Contingencies 44.5 - 44.5
Total project 261.9 144.6 406.5
Closure costs 20.3
Metallurgical recoveries and off-site charges
As reported in the company's news release on June 5, 2019, metallurgical testing of samples from Ayawilca indicates that a zinc concentrate grading 50 per cent zinc can be produced with 92 per cent of the zinc recovered to the concentrate. The lead metallurgy has been assumed based on similar operations. The lead concentrate is expected to assay 50 per cent lead and between 2,750 and 5,930 g/t silver. Most of the silver is expected to report to the lead concentrate and be payable, while silver is not expected to be payable in the zinc concentrate. The zinc concentrate is expected to be a marketable concentrate with no deleterious elements other than an iron penalty. Concentrate grade assumptions and recoveries for the principal metals are provided in the table below.
COMPOSITE HEAD GRADE, METALLURGICAL RESULTS AND RECOVERIES
Product Average grade LOM Metallurgical recoveries (%)
Zinc Indium Lead Silver ZnEq Zinc Indium Lead Silver
(%) (g/t) (%) (g/t) (%)
Feed grade 6.05 67.1 0.25 18.3 100 100 100 100
Zinc concentrate 50.0 555 0-0.1 0-100 92 92 0 0
Lead concentrate 4.0 50.0 3,721** 6.77* 0 0 85 85
* Zinc equivalent (%) equals NSR divided by 15.39.
** Silver grades were calculated for the PEA and range from 2,750 to 5,930 g/t.
Off-site charges include road transport of concentrates either to the local port of Callao, Peru, or a local smelter. For the purposes of the PEA, 75,000 tonnes per year of the zinc concentrates are assumed to be delivered directly to a local smelter and the remainder of the concentrates (averaging 126,750 tonnes per year) are assumed to be shipped to overseas smelters. All of the lead concentrates are assumed to be shipped overseas. Off-site charges include treatment charges, refining charges and iron penalties at smelter.
Description Zinc concentrate Lead-silver concentrate
Transport to port/local smelter $35 (U.S.)/wmt $35 (U.S.)/wmt
Port charges $17.5 (U.S.)/wmt $17.5 (U.S.)/wmt
Shipping to overseas smelter (FOB) $45 (U.S.)/wmt $45 (U.S.)/wmt
Local smelter treatment charge (TC) $190 (U.S.)/dmt -
Overseas smelter* treatment charge (TC) $170 (U.S.)/dmt $150 (U.S.)/dmt
Smelter refining charge (RC) - $1.50 (U.S.)/oz
Iron penalty $7.50 (U.S.)/dmt -
wmt: wet metric tonne.
dmt: dry metric tonne.
* Assumes a $20 (U.S.)/t credit for high indium values in the zinc concentrate, expected
to be around 550 g/t In.
The mine plan for the PEA was based on a net smelter return (NSR) cut-off value of $65 (U.S.) per tonne, which is higher than the NSR cut-off value used for previous resource estimates and higher than the $48.58 (U.S.) operating cost per tonne assumed in the PEA.
The prices and NSR factors for each metal utilized in the NSR calculation are presented in the associated table.
METAL PRICES AND NSR FACTORS
Metal 2019 PEA Nov. 26, 2018, resource estimate
Metal price NSR factor Metal price NSR factor
Zinc (Zn) $1.20 (U.S.)/lb $15.39 (U.S.) $1.15 (U.S.)/lb $15.34 (U.S.)
Lead (Pb) $0.95 (U.S.)/lb $12.25 (U.S.) $1.00 (U.S.)/lb $4.70 (U.S.)
Silver (Ag) $18.00 (U.S.)/oz $0.44 (U.S.) $15.00 (U.S.)/oz $0.22 (U.S.)
Indium (In) - - $0.30/g $0.18 (U.S.)
NSR for the PEA was calculated using the following formula:
NSR (U.S. dollars) equals (Zn (per cent) times $15.39 (U.S.) plus Pb (per cent) times $12.25 (U.S.) plus Ag (g/t) times 44 U.S. cents).
NSR factors are different to those used for the Nov. 26, 2018, mineral resource estimation, as shown in the associated table. Metal price assumptions are marginally different, while indium was not considered as payable for the PEA due to low current indium prices. However, a $20 (U.S.)/dmt credit is assumed for high indium zinc concentrates sent to overseas smelters. The difference in the NSR factor for lead is the result of higher recovery of lead and higher lead grade in the concentrate.
The Ayawilca zinc project is highly leveraged to zinc price. A 20-per-cent increase to the price of zinc results in an after-tax NPV8 of $606-million (U.S.), an increase of $243-million (U.S.) over the base case PEA scenario.
Opportunities and exploration potential
The Ayawilca zinc zone has not been fully delineated and is open in several directions, including to the east and northeast. Exploration drilling is currently continuing.
Opportunities for additional value on the Ayawilca property not captured in the PEA include:
- Potential for expansion of zinc zone resources at central, south, east, zone 3 and camp areas through additional drilling;
- The Tin zone, which was not included in the PEA because it requires additional metallurgical work, offers significant exploration potential as the resource remains open in several directions;
- The Colquipucro silver oxide deposit is amenable to open-pit mining methods, but was not included in the PEA because it is believed to require higher silver prices to potentially be economic. However, the prospects of economic extraction may improve if a zinc mine is built on the property;
- A number of untested exploration targets on the company's 170-square-kilometre area of mining concessions that comprise the Ayawilca property.
Based on the positive initial PEA, the company intends to continue to advance the Ayawilca zinc project toward production. Next steps will include:
- Continuing exploration drilling with the aim of expanding the zinc zone resources, especially in high-grade areas;
- Obtain the required permits for infill drilling to support a prefeasibility study. This process has already begun and is expected to take the remainder of 2019. Further expansion of the drill permits will be required in 2020 in order to test exploration targets outside of the current drill permitted areas;
- Optimization studies will be completed to evaluate potential economic improvements, including higher metallurgical recoveries (for both Zn and Pb) and a reduction in the iron content in the zinc concentrate;
- Additional geotechnical data are required to evaluate more advanced mine planning studies, including potentially higher mine throughput options than contemplated in the PEA;
- High indium grades in the zinc concentrate represent a potential value add, although limited value was applied in the PEA for indium. Further technical and marketing studies will be carried out to evaluate how additional value may be derived from indium as part of a future mining operation;
- Conduct mineralogical and metallurgical studies on the tin zone resources in order to evaluate the economic potential of these resources.
A National Instrument 43-101 technical report will be filed on SEDAR within 45 days.
The table outlines the indicated and inferred mineral resources estimates (Nov. 26, 2018) used in the PEA, including those that are not included in the mine plan. The base case resource is highlighted in bold, which assumes a cut-off value of $55 (U.S.)/t NSR. As noted above, the metal prices and cut-off used in the mine plan are slightly modified from the resource estimation.
SENSITIVITY ANALYSIS -- AYAWILCA ZINC ZONE TONNAGE AND
GRADE REPORT BY NSR CUT-OFF VALUE -- NOV. 26, 2018
NSR $/t cut-off Tonnage Mt ZnEq % grade Zinc % Lead % Indium g/t Silver g/t
40 13.6 7.4 6.3 0.16 75 15
50 12.4 7.9 6.7 0.17 80 15
55 11.7 8.1 6.9 0.16 84 15
60 10.8 8.5 7.2 0.16 89 16
70 9.4 9.2 7.7 0.15 99 16
80 7.9 10.0 8.4 0.15 111 17
NSR $/t cut-off Tonnage Mt ZnEq % grade Zinc % Lead % Indium g/t Silver g/t
40 52.7 6.2 5.2 0.24 60 17
50 48.1 6.5 5.4 0.24 64 17
55 45.0 6.7 5.6 0.23 67 17
60 41.5 7.0 5.8 0.23 70 18
70 33.9 7.6 6.4 0.22 78 18
80 26.9 8.3 6.9 0.22 86 20
(1) CIM definitions were followed for mineral resources.
(2) Mineral resources are reported above a cut-off NSR value of $55 (U.S.) per
(3) The NSR value was based on estimated metallurgical recoveries, assumed
metal prices and smelter terms, which include payable factors, treatment charges,
penalties and refining charges. Metal price assumptions were: $1.15 (U.S.)/lb Zn,
$300 (U.S.)/kilogram In, $15 (U.S.)/oz Ag and $1 (U.S.)/lb Pb. Metal recovery
assumptions were: 90 per cent Zn, 75 per cent In, 60 per cent Ag and 75 per cent
Pb. The NSR value for each block was calculated using the following NSR factors:
$15.34 (U.S.) per per cent Zn, $4.70 (U.S.) per per cent Pb, 18 U.S. cents per
gram In and 22 U.S. cents per gram Ag.
(4.) The NSR value was calculated using the following formula: NSR is equal to Zn
(per cent) multiplied by $15.34 (U.S.) plus Pb (per cent) multiplied by $4.70
(U.S.) plus In (g/t) multiplied by 18 U.S. cents plus Ag (g/t) multiplied by 22
(5) The ZnEq value was calculated using the following formula: ZnEq is equal to
NSR divided by $15.34 (U.S.).
(6) Numbers may not add due to rounding.
Qualified person statements
Technical information related to the PEA contained in this news release has been reviewed and approved by William Colquhoun, FSAIMM, principal metallurgical consultant with Amec Foster Wheeler (Peru) SA, a Wood company. Mr. Colquhoun is a fellow of the South African Institute of Metallurgy and a registered professional engineer of the Engineering Council of South Africa with 32 years experience. Edwin Peralta, PE, SME-registered member and a qualified person as defined in National Instrument 43-101 -- Standards of Disclosure for Mineral Projects, is a senior engineer with Wood Mining and Metals USA with 23 years of experience.
The mineral resources disclosed in this press release were estimated by Dorota El Rassi, PEng, and David Ross, PGeo, both employees of RPA and independent of Tinka. By virtue of their education and relevant experience, Ms. El Rassi and Mr. Ross are qualified persons for the purpose of National Instrument 43-101. The mineral resources were classified in accordance with CIM Definition Standards for Mineral Resources and Mineral Reserves (May, 2014). Both Ms. El Rassi and Mr. Ross have read and approved the contents of this press release as they pertain to the disclosed mineral resource estimates.
The metallurgical and recovery inputs have been reviewed and verified by Adam Johnston, FAusIMM, CP (metallurgy), of Transmin Metallurgical Consultants, Lima, a qualified person as defined by National Instrument 43-101. Mr. Johnston has 25 years of mineral processing experience and is a fellow of the Australasian Institute of Mining and Metallurgy.
Dr. Graham Carman, Tinka's president and chief executive officer, reviewed, verified and compiled the technical contents of this release. Dr. Carman is a fellow of the Australasian Institute of Mining and Metallurgy, and is a qualified person as defined by National Instrument 43-101.
Data verification and quality control and assurance
RPA visited the Ayawilca property, reviewed the sampling and preparation methods, quality assurance/quality control methods and results, and sample chain of custody procedures, and performed independent resource database verification tests. Details on the database verification work are provided in an RPA technical report dated Jan. 9, 2019. RPA is of the opinion that the procedures are appropriate and the resource database is suitable to estimate mineral resources.
About Tinka Resources Ltd.
Tinka is an exploration and development company with its flagship property being the 100-per-cent-owned Ayawilca carbonate replacement deposit (CRD) in the zinc-lead-silver belt of central Peru, 200 kilometres northeast of Lima. The Ayawilca zinc zone contains 11.7 Mt of indicated resources grading 6.9 per cent zinc, 0.2 per cent lead, 15 g/t silver and 84 g/t indium, and 45.0 Mt inferred resources grading 5.6 per cent zinc, 0.2 per cent lead, 17 g/t silver and 67 g/t indium. The Ayawilca tin zone contains an inferred mineral resource of 14.5 Mt at 0.63 per cent tin, 0.23 per cent copper and 12 g/t silver (this release). A maiden PEA is under way, with results anticipated in the first half of 2019.
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