Alta Zinc Ltd (ASX:AZI)‘s scoping study has confirmed that the Gorno Zinc-Lead-Silver Project in northern Italy is potentially a commercially viable underground development opportunity, with considerable upside potential.
The initial scoping study by CSA Global, estimated an approximate total production target of 6.0 million tonnes containing 77% indicated and 23% inferred mineral resources at or above a cut-off grade of 3.5% zinc equivalent at an annual mining rate of 800,000 tonnes over the proposed nine-year Life of Mine (LOM).
It has also identified pre-production capital costs of US$114 million, excluding pre-development capital of around A$5.2 million.
The LOM target is estimated to be about 630,000 dry metric tonnes (dmt) of zinc concentrate (63% zinc) and 108,000 dmt of lead-silver concentrate (76% lead and 740 g/t silver).
Planned drill programs to test the extensions of the current mineral resource and surrounding exploration target area(s) are likely to extend the life of mine beyond the initial nine-year period.
Next stage of feasibility studies
The study recommends proceeding to the next stage of feasibility studies.
In accordance with the recommendations, the company plans to commence further metallurgical test-work in early 2022 in parallel with ongoing exploration and resource drilling as part of a definitive feasibility study (DFS) with results expected by the end of 2022.
The current study indicates that pre-development work will start in 2022 with a construction decision mid-2023 and first production early in the second half of 2024.
These timings will be further evaluated and refined in the upcoming DFS.
The scoping study is based on the mineral resource estimate (MRE) of 7.79 million tonnes at 6.8% zinc, 1.8% lead and 32 g/t silver.
Best-in-class modern underground mine?
Alta Zinc manging director Geraint Harris said: “This scoping study provides an initial evaluation of the Gorno Project that considered several possible options to define a project path to maximise project economics, minimise environmental and social impacts and deliver maximum shareholder returns.
“In my opinion, Gorno is set to become a best-in-class modern underground mine with a minimal surface and environmental footprint.
“It will efficiently extract a high value mineralisation and convert it into one of the highest grade and cleanest zinc and lead concentrate products available globally.
Initial economic evaluations compelling
He continued: “The initial economic evaluations are compelling and provide substantial justification for the advancement of the asset, as well as highlighting areas where we can further grow the resource base and refine our strategy for progressing the asset throughout 2022.
“We take confidence from the study knowing that the robust NPV and IRR was based on a detailed analysis from highly experienced consultants, with commodity price assumptions significantly below current spot levels.
“There are opportunities for further resource extension and optimisation, with the upside potential for increasing mine life and possibly throughput.
“The company has achieved rapid resource growth and exploration success in the last 24 months notwithstanding challenges faced with COVID-19 both globally and within Italy and we remain committed to continuing an extensive program of exploration and development activities across our 100%-owned Italian tenement package.
Scoping study results
The scoping study delivered the following key results:
? LOM production target is indicated to be 6.04 million tonnes at 7.1% zinc, 1.9% lead and 31 g/t silver, recovering 396,000 tonnes zinc, 81,800 tonnes lead and 3.4 million ounces silver (comprising of 77% indicated mineral resources and 23% inferred resources)
- LOM concentrate production of zinc: 630,000 dmt (63% zinc) and lead: 108,000 dmt lead/silver concentrate (76% lead and 740 g/t silver); and
- Annual mine production rate of 800,000 tonnes and processing rate of 520,000 tonnes.
? Mine life of nine years (plus a 15-18 months construction period) averaging around US$67 million (A$93 million) of annual free cash-flow during peak production (years 2026 to 2031).
? Among the lowest projected cost for global primary zinc producers
- Cash cost mining, processing, G&A, transport, treatment charges/refining charges (TC/RC), royalty of US$0.54/lb zinc equivalent (co-product convention); and
- All-in sustaining cost (AISC) mining, processing, general & administration, transport, TC/RC, royalty, sustaining capex of US$0.60/lb zinc equivalent (co-product convention).
? Zinc metallurgical recovery of 93% (including ore sorter) with 80% of revenues from payable zinc.
? Estimated initial capital cost, US$114 million (+-35% accuracy) and LOM sustaining capital cost of US$42 million
- Substantially de-risked initial underground capital includes 3,800 metres of re-used historical development, 890 metres of existing development being enlarged, 2,880 metres of new development and 400 metres of raise-boring;
- Includes all-new processing equipment, underground crusher and conveyors, ore sorters, waste and concentrate loading facilities, train haulage, all surface and underground infrastructure;
- Re-use of an existing modern factory building and infrastructure to house the processing plant and no surface tailings disposal or waste dumps required; and
- Sustaining capital estimated at US$42 million (8% of operating cost).
? Positive financial metrics in the range of:
- Post-tax net present value (NPV) of about US$211 million (A$288 million);
- Post-tax internal rate of return (IRR) of around 50%; and
- Payback period of around 3.5 years from final investment decision and about 2.5 years from first concentrate production.
? Significant expansion and upside potential beyond the scoping study
- Ongoing exploration drilling will run in conjunction with the DFS, targeting further resources definition and growth expected from the defined Exploration Target estimated as an additional 17.4 million tonnes to 22 million tonnes at grades ranging between 8.5 and 10.4% zinc, 1.9 and 2.4% lead and 19 and 23 g/t silver from exploration to be undertaken in conjunction with next stage of study; and
- Ongoing metallurgical test-work and flowsheet design will target processing performance, equipment sizing, maximising metallurgical recoveries and optimising concentrate economics.
The company will explore all financing and development options that are in the interests of maximising shareholder value.
Whilst no formal funding discussions have commenced, Alta Zinc has engaged with a number of financial institutions, who have expressed a high level of interest in being involved in the funding of the project.
It has also received indicative support from its major shareholder, Victor Smorgon Group (VSG), to support future funding requirements, however no binding commitment is currently in place.
To achieve the range of outcomes indicated in the study, pre-production funding of around A$152 million may be required.
Typical project development financing would involve a combination of debt and equity.
Alta has formed the view that there is a reasonable basis to believe that requisite future funding for development of the Gorno Project will be available when required.
This is based on the fact that:
? The study results indicate that the Gorno Project has scale and quality parameters that would be advantageous for future discussions with potential financiers and/or industry partners;
? The Gorno zinc and lead concentrate specifications are of exceptionally high grade. It is likely that the entire Gorno zinc production could be sold to smelters within Europe and the concentrates also meet Chinese import requirements for low levels of deleterious elements. Financing support is considered likely from smelters or metals traders requiring access to a supply of high grade, low iron concentrates to address the ongoing market shortage of adequate high-grade replacement tonnage since the Century mine closure in 2015;
? The company has achieved a strong track record of raising equity funds as and when required to further the exploration and evaluation of the Gorno Project. Global debt and equity finance availability for high-quality base metals projects remains robust; and
? Alta has a current market capitalisation of around A$25 million and no debt, and has an uncomplicated, clean corporate and capital structure. Alta owns 100% of the Gorno Project. These factors are expected to be highly attractive to potential financiers.