Peru-focused Tinka Resources (TSXV:TK, OTCP:TKRFF) has the backing of a major player in the Peruvian zinc and silver market, adding significant heft to its flagship Ayawilca zinc-silver play.
Nexa Resources (TSX:NEXA), one of the world’s largest zinc producers, and owner of the only zinc smelter in Peru, purchased 28.895 million common shares from an arms-length shareholder, giving the Luxembourg-based firm an 8.8% stake in Tinka.
The shares were sold for C$0.26, which is a 13% premium to Tinka’s March 16, 2021 closing share price.
The transaction means Tinka Resources now has two major miners as shareholders — the other being Buenaventura SA (NYSE:BVN) — along with JP Morgan UK.
Dr. Graham Carman, Tinka’s President and CEO, welcomed Nexa to its share register, stating in a March 17 news release,
“Nexa is a major player in the worldwide zinc market and is the leading producer of zinc in Latin America. Nexa has several operating base metal mines in Peru and owns the only operating zinc smelter in the country. The addition of Nexa as a shareholder of Tinka is a strong endorsement of our Ayawilca zinc-silver project and of our team.”
The CEO of Nexa Resources, Tito Martins, stated: “Nexa has a unique position in Peru and Brazil and we are pleased to become a new shareholder of Tinka Resources. Ayawilca is one of the largest zinc projects in development in Peru with excellent development potential as well as resource expansion. We believe it will provide us a further option to grow, maintaining the long-term sustainability of our business and adding value to all our stakeholders. We are happy to become a shareholder now during the pre-development stage.”
Describing itself as a large-scale, low-cost integrated zinc producer with over 60 years experience in Latin America, Nexa owns and operates five underground mines — three in the central Andes region of Peru and two in the Brazilian state of Minas Gerais. A sixth underground mine is being developed, the Aripuanã project in Mato Grosso, Brazil.
A 2019 annual report states that Aripuanã is among the largest zinc greenfield projects under construction.
Two of its mines, Cerro Lindo in Peru and Vazante in Brazil, are among the 20 largest zinc mines in the world, and combined with other mining operations, placed Nexa among the four largest zinc producers in the world in 2019, according to commodities consultancy Wood Mackenzie.
Nexa’s 2019 operations produced 361,00 tonns of zinc, more than Canada’s total mined zinc production of 336,000 tonnes the same year.
The company’s Cajamarquilla is the only zinc smelter in Peru and among the five largest in the world by volume produced. It also has two smelters in Brazil which output metallic zinc, zinc oxide and byproducts.
In 2019 Nexa’s smelters produced 621,000 tonnes, including 584,000t of metallic zinc and 37,000t of zinc oxide, sold into several industries, including automotive, construction, food, agriculture, beauty & hygiene, and pharmaceuticals.
Tinka’s 19% shareholder is also a Latin America-focused mining powerhouse. Buenaventura currently has 10 operating mines in Peru and several exploration projects under development. It is a partial owner in six of its mines, including the Yanacocha open-pit gold mine (43.6%), and Cerro Verde, an open-pit copper mine it has a 19.5% stake in.
Out of all its operations, Buenaventura produces 14% silver, 12% copper, 11% zinc, 6% lead and 4% gold. In 2020 the company outputted 11.9 million ounces of silver, 134,000 oz of gold, 65,399 tonnes of zinc and 30,735t of copper.
Buenaventura and Nexa Resources are the fourth and fifth largest companies in Peru in terms of exploration investment, in 2019 spending a respective $24.1 million and $23.7 million, according to Statista.
Base metals run
Base metals went on a remarkable run during the second half of 2020 as the global economy began to recover from the pandemic. Commodities led by copper received a massive boost from covid-19 stimulus programs and increased manufacturing, particularly in China, the world’s largest metals consumer. Zinc was another star performer, which moved in tandem with copper and touched its highest point since 2018.
While zinc’s primary use is to stop steel from rusting, other applications are shoring up demand. Adding zinc to fertilizer increases soil productivity, and there is research being conducted to develop a zinc battery for use in electric vehicles. Zinc, of course, is already used in alkaline batteries.
The base metal is also used heavily in infrastructure buildouts. This includes desperately needed bridges, public buildings, power stations, dams etc. in the US, much of the developing world, and China’s Belt and Road Initiative which along with needing millions of tonnes of copper, is going to require a lot of galvanized steel containing zinc.
Zinc alloys including brass are used in corrosion-resistant marine components and musical instruments, to name a couple of more applications.
Given robust demand and supply disruptions — over the years, some very large zinc mines have been depleted and shut down, with not enough new mine supply to take their place — the zinc market is currently facing a deficit, estimated at 650,000 tonnes by ING Bank. This shortfall is likely to remain throughout 2021 on the infrastructure stimulus narrative, supporting the upward trend in zinc prices.
According to Fitch Solutions, higher zinc prices are encouraging investments into a pipeline of new projects in 2021. While China has always been the world’s biggest producer of the metal, the firm sees mine production stagnating there over the coming years on declining ore grades and environmental concerns.
This opens the door for Peru, the second-largest zinc producer, and the top maker of concentrates. While Peru’s zinc sector is dominated by the Antamina operation, Fitch anticipates more projects coming online shortly to capitalize on higher prices.
This includes Tinka Resources’ Ayawilca project, located about 200 km northeast of Lima in the Pasco region. The property consists of 16,500 hectares of contiguous claims, along a world-class mining belt in central Peru known for producing base metals.
About 100 km to the north is the giant Antamina copper-zinc mine, owned by BHP, Glencore, Teck Resources and Mitsubishi.
Ayawilca is a carbonate replacement deposit (CRD), an important style of polymetallic mineralization containing economic amounts of zinc, silver, lead, and copper. Notable deposits in the region include the Cerro de Pasco and Morococha mines (see map below).
The focus is currently on areas of zinc mineralization, which contain nearly 2 billion pounds of indicated resources, making it the largest zinc development project in Latin America and one of the biggest zinc resources held by a junior explorer.
According to the latest resource update (November 2018), Ayawilca contains an estimated 1.8 billion pounds zinc and 5.8 million oz silver in the indicated category, and 5.6 billion lb zinc and 25.2 million oz silver in the inferred category as sulfides. In addition, there are 42 million lb and 230 million lb of lead resources in the indicated and inferred categories, respectively.
The nearby Colqui silver zone (see project map below) has an estimated 14.3 million ounces of indicated silver and 13.2Moz inferred, with mineralization starting at surface.
Should all go according to plan, Tinka will fast-track to operations by 2023, producing approximately 140,000 tonnes of zinc concentrate in its first year.
Recent exploration by Tinka has outlined a tin 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.
This makes Tinka’s Ayawilca project unique, as such deposits containing massive zinc mineralization and possibly tin are not easy to find.
The metal mainly used in soldering has seen its demand skyrocket against the backdrop of booming electronics sales in the “work-from-home” era.
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 amid the pandemic. Even China, the world’s largest producer, is running short of the metal, dramatically increasing its refined tin imports last year.
The effects are being felt in London, where the three-month price, currently around $25,700 per tonne, is approaching February’s 10-year high of $27,500/t. Of base metals traded on the London Metal Exchange (LME), tin is the best performer, up 23% so far this year.
The rise in the spot price has been even sharper, with short-term supply trading at unprecedented premiums to longer-dated prices. Year to date, spot tin has risen 27%.
Supply chain disruptions are also taking their toll.
Reuters reports that Tightness in the physical supply chain has driven premiums to record levels in both the United States and Europe, with flows of metal from Asia disrupted by backlogs in the container shipping sector.
US buyers may be in for some unexpected short-term relief as the Defense Logistics Agency prepares to sell its first metal in over a decade, but the underlying supply crunch shows no signs of resolving itself any time soon.
Tinka’s plan for 2020-21 is to undergo a resource expansion and infill drill program on the Ayawilca property.
All 21 holes of the 7,600m program are now complete, meaning the company is ready to compile the drill data and complete geological interpretations in preparation for an updated mineral resource and PEA scheduled for the middle of 2021. Assay results for the last four drill holes are pending.
The latest batch of assays came in this week for six drill holes.
Four holes are located at the Camp target and two are at the South area. (see map below in particular the oval-shaped drilling focus within red-dotted line)
The two holes at South Ayawilca intersected high grade zinc-silver mineralization associated with massive sulfide mineralization over substantial widths and are expected to expand the indicated mineral resource.
Highlights included 4.1 meters of 17.7% zinc and 34 grams per tonne (g/t) silver, and 40m @ 8.8% zinc and 12 g/t silver. These holes was drilled fairly deep, between 300 and 325m.
A second hole pulled up 5m of 6.9% zinc and 13 g/t silver, 1.7m @ 23.4% zinc and 97 g/t silver, and 23.6m @ 9.4% zinc and 10 g/t silver. Depths at this hole ranged from 133.3m to 304.3m.
Drill core from the Camp area featured 1.3m @ 34.6% zinc, 0.9% lead and 190 g/t silver in hole 180; 5.9m of 11.4% zinc, 1.9% lead and 39 g/t silver in hole 181; 4.8m @ 3.8% zinc, 3% lead and 93 g/t silver in hole 182; and 6m @ 3% zinc, 2.1% lead and 57 g/t silver in hole 183.
These four holes found mineralization at between 89m and 302m depth. It is mostly associated with gently dipping sulfide “mantos” hosted in limestones.
“This is another set of strong drill results from Ayawilca. The results from the two South Ayawilca holes confirm that high grade mineralization within the current indicated mineral resource boundary extends at least a further 80 metres to the northeast. Holes A21-185 and A21-187b were both infill holes, confirming our geological model and understanding of the geometry of the mineralization at South Ayawilca. These holes improve the confidence of our resource base,” Tinka’s President and CEO, Dr. Graham Carman, stated in the March 17 news release. He added:
“Our aim for this program has been to extend the indicated mineral resources at West Ayawilca southwards into the Camp area, and South Ayawilca further to the east. In both areas we have successfully discovered new zones of high-grade zinc and silver mineralization which will add value to the project. Eighty percent of the holes in the program have now been reported. In the coming weeks we plan to advance the Ayawilca project with a resource update, carry out metallurgical test work focusing on the silver-lead mineralization and begin work on a new PEA. The Company remains in a strong position and is fully funded to complete this planned work. As the 2020-2021 drill program winds up, we look forward to reporting the results of the remaining holes.”
The addition of Nexa Resources as a 9% shareholder is a big deal. It shows confidence in Tinka and validates the work it has done so far on the property. The company now has three corporates on its share register. Nexa and Buenaventura are both major players in Peru’s zinc and silver markets.
Since acquiring its land position at Ayawilca in 2005, Tinka has shown a sizable resource boasting expansion potential.
On Wednesday the market rewarded Tinka’s news with a 2-cent, 8.7% bump in the stock price, to C$0.25 per share, bringing the company’s market cap to $85.1 million.
We are expecting further share price appreciation as Tinka delivers results from the last four holes of the 2020-21 program, hopefully highlighting more high-grade zinc and silver.
Tinka Resources Ltd.
Shares Outstanding 340,740,717
Market cap Cdn$85.1m
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