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.
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.
Shares Outstanding 340,740,717
Market cap Cdn$80m
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