Tinka Resources’ Ayawilca project stands to benefit from commodity boom, historic supply squeeze

21.02.27

Industrial metals are on an absolute tear with no signs of slowing down.

Investors are betting on the global economy to inevitably recover from the pandemic, buoyed by massive stimulus packages, and to shift gears towards clean energy, which requires raw materials to build more infrastructure. This line of thinking sets in motion what many analysts consider to be a new “commodity boom” — or perhaps even a “supercycle.”

Copper, often called the “bellwether metal” due to its multiple end-uses in manufacturing, soared to its highest in a decade this week on brighter demand outlook from the construction and energy sectors. Analysts at Citigroup have pinned a copper deficit of about 500,000 tonnes this year, highlighting the level of demand the market is about to face.

Nickel, a key raw material in stainless steel as well as electric vehicle batteries, has been going neck-in-neck since the new year. Earlier this month, the metal climbed to a 7-year high amid rising demand expectations from the EV sector and talks of Tesla’s potential investment in Indonesia, the top producer.

Historic Supply Squeeze

However, the best performing base metal this year is neither copper nor nickel, but tin.

Although relatively smaller compared to other metals, the tin market is currently facing one of the biggest supply squeezes in history amid growing demand and faltering supply.

The metal mainly used in soldering has seen its demand skyrocket against the backdrop of booming electronics sales in the “work-from-home” era.

But unlike most commodities, tin has been in a supply deficit for three years, according to the International Tin Association (ITA), with global mine output under further pressure in the wake of the pandemic. Even China, the world’s largest producer, is running short of the metal, dramatically increasing its refined tin imports last year.

Recognizing that the global tin supply may soon struggle to meet a resurgent demand, investors have been drawn into the market for what is deemed a critical but highly illiquid metal.

The effects are being felt in London, where tin contracts were knocking on 9-year highs over the past week and are already up more than 20% so far this year. The rise in spot prices has been even sharper, with contracts for short-term supply trading at unprecedented premiums to longer-dated prices.

More Tin Needed

With demand still booming and miners warning of further production shortfalls, the key question is where fresh supply would come from to ease the strain. The ITA has warned that supply would struggle if demand staged the same sort of sharp recovery seen ten years ago after the global financial crisis.

The solution is straightforward: new mines must be developed to ensure our tin supply can sustain years of consumption.

Unlike most base metals, economically viable deposits containing tin minerals are only restricted to a few areas. While most of the world’s tin comes from deposits in China and Southeast Asia, production within these regions has stagnated over recent years and is at risk of decline.

Chinese mining operations are under pressure from environmental curbs, while coronavirus restrictions in Indonesia and political ructions in Myanmar are threatening to cause further supply disruptions.

The next frontier for mining tin is South America, which has historically produced large amounts of the metal but has seen limited exploration since the 21st century due to falling grades and cost constraints.

But now that tin prices are on the rise, it would be a matter of time before investments start pouring into the region to turn previously defined resources into producing mines.

Ayawilca Project, Peru

As one of the top mining jurisdictions on the continent, Peru has a rich history of tin production dating back to 1975.

The nation’s tin industry has long been dominated by Minsur’s San Rafael mine, the leading producer in South America and third largest in the world. As such, much of its estimated 550,000 tonnes of resources belong to the Peruvian company. However, Peru likely has far more tin resources than what was reported to CRIRSCO standards.

Given Peru’s history of producing base metals and the rarity of high-quality deposits worldwide, Tinka Resources Ltd (TSXV & BVL: TK) (OTCPK: TKRFF) is looking to develop the Ayawilca project located 200 km northeast of Lima in the Pasco department.

Ayawilca is classified as a carbonate replacement deposit (CRD), an important style of polymetallic mineralization found in the central part of Peru, containing economic amounts of zinc, silver, lead and copper. Notable mined deposits in the region include the Cerro de Pasco and Morococha mines (see map below).

Focus of the Ayawilca project is currently on areas of zinc mineralization, which contain nearly 2 billion lb of indicated resources, making it the largest zinc development project in Latin America and one of the largest zinc resources held by a junior miner.

However, recent exploration by Tinka has also outlined a tin mineralized zone underlying the primary zinc mineralization. A 2019 technical report estimates that the project has over 90,000 tonnes of tin in the inferred category.

The sulphide lenses formed at the Ayawilca tin zone consist of massive pyrrhotite with quartz, chlorite, cassiterite (the most important source of tin on Earth), pyrite and chalcopyrite. Quartz stockworks within phyllite also host tin-copper mineralization beneath these lenses.

This makes Tinka’s Ayawilca project almost unique in the world, as such deposits containing massive zinc mineralization and possibly tin are not easy to find.

According to the company, further metallurgical test work is required to determine the recoverability of the cassiterite mineral from the sulphide-rich mineralization. Nonetheless, this will be incorporated into the project’s economics upon completion.

Resource Expansion Program

Tinka is presently undergoing a resource expansion and infill drill program on the Ayawilca property, comprising 20 holes for 7,500 meters of planned drilling. The program is scheduled for completion this month, after which the company will compile the data for a resource and PEA update.

Drilling to date has delivered significant results that Tinka believes will expand the indicated resources at Ayawilca.

The latest batch of assay results came in late January for seven drill holes, one of which intersected very high-grade vein-style zinc-silver-lead mineralization outside of the current zinc resource.

This drill intersection, which included 7.8 meters at 31.3% Zn, 1.7% Pb and 225 g/t Ag, was easily one of the best grade intersections the company has ever had at Ayawilca and is especially attractive as it occurs at shallow depth (~100 meters).

According to Tinka, this shallow nature of the mineralization “opens up the possibility for high-grade zinc-silver-lead resources much closer to surface than previously thought.” The company plans to follow up this vein with more drilling before the end of the current program to better define its extent.

Meanwhile, three other drill holes have also discovered strong manto-style zinc mineralization outside of the current resource hosted within the limestones, adding to the promising results the company received from drilling in the West and South Ayawilca areas.

Conclusion

Since acquiring its land position at Ayawilca in 2005, Tinka has successfully provided a sizable resource boasting further exploration potential.

Scheduled to begin production in 2024 and with an estimated mine life of more than 20 years, the Ayawilca project is perfectly positioned to benefit from the modern commodity cycle that has taken base metals to levels not seen since the end of the last economic crisis.

Even before the threat of metals supply deficits, Tinka’s flagship project has been quietly generating market interest given the deposit’s size and qualities.

Major shareholders of the company currently include Peruvian miner Buenaventura, International Finance Corporation and JP Morgan UK, validating the work it has done so far on the property.

Tinka Resources Ltd.
TSX.V:TK, OTCPK:TKRFF
Cdn$0.235, 2021.02.27
Shares Outstanding 340,740,717
Market cap Cdn$80m
TK website

Richard (Rick) Mills
aheadoftheherd.com
subscribe to my free newsletter

Legal Notice / Disclaimer

Ahead of the Herd newsletter, aheadoftheherd.com, hereafter known as AOTH.

Please read the entire Disclaimer carefully before you use this website or read the newsletter. If you do not agree to all the AOTH/Richard Mills Disclaimer, do not access/read this website/newsletter/article, or any of its pages. By reading/using this AOTH/Richard Mills website/newsletter/article, and whether or not you actually read this Disclaimer, you are deemed to have accepted it. 

Any AOTH/Richard Mills document is not, and should not be, construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

AOTH/Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified. AOTH/Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of AOTH/Richard Mills only and are subject to change without notice. AOTH/Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, AOTH/Richard Mills assumes no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this AOTH/Richard Mills Report.

AOTH/Richard Mills is not a registered broker/financial advisor and does not hold any licenses. These are solely personal thoughts and opinions about finance and/or investments – no information posted on this site is to be considered investment advice or a recommendation to do anything involving finance or money aside from performing your own due diligence and consulting with your personal registered broker/financial advisor. You agree that by reading AOTH/Richard Mills articles, you are acting at your OWN RISK. In no event should AOTH/Richard Mills liable for any direct or indirect trading losses caused by any information contained in AOTH/Richard Mills articles. Information in AOTH/Richard Mills articles is not an offer to sell or a solicitation of an offer to buy any security. AOTH/Richard Mills is not suggesting the transacting of any financial instruments but does suggest consulting your own registered broker/financial advisor with regards to any such transactions.