Metalicity (ASX: MCT, Share Price: $0.024, Market Cap: $9m) is effectively a brand new zinc play, after altering its business activity from health care to mineral exploration and acquiring the advanced Admiral Bay zinc project in Western Australia. The acquisition was announced in late 2014, however the company had to comply with Chapters 1 and 2 of the ASX Listing Rules, which means it has only just re-listed.
I had the opportunity for a lunch briefing today with a couple of Metalicity’s key executives – Managing Director, Matt Gauci and Exploration Manager, Mike Hannington – who provided a comprehensive overview of the attractions of the Admiral Bay project in the context of a looming zinc supply shortfall.
Market Significance
Metalicity has made a solid return to ASX trading after three months in suspension whilst the acquisition was finalized and the company complied with ASX listing rules as a new exploration play. Admiral Bay is one of the world’s largest undeveloped zinc projects at a time of a looming zinc supply shortfall – and there is significant scope for a resource upgrade and expansion, given that mineralisation has been intersected along a mineralised trend with a strike length of 18km. The acquisition and initial six-month work program through to the completion of a Scoping Study are fully funded, with $6 million in cash reserves.
Zinc Industry Fundamentals
I believe we are approaching a critical point in terms of declining supplies from existing zinc sources. We’re seeing continued declines in London Metal Exchange (LME) inventories and it is likely that the zinc supply imbalance will increase over the coming years, providing price support.
At the end of the day it’s not rocket science, as the trend of diminishing stockpiles directly reflect supply-side issues related to the closure of ageing mines. It’s a situation that’s been looming for the past decade or so, but the consequences of which have been delayed by the lingering impact of the GFC and more recently China’s economic slowdown.
In the near-term, we will see the closure of the large Century (Australia) and Lisheen (Ireland) zinc mines during 2015. We have also seen over recent weeks Glencore’s announcement that it will be cutting back zinc production by 500,000tpa at various operations, providing further supply-side pressures.
Investment Overview
Metalicity Limited’s Admiral Bay zinc deposit is situated within Western Australia’s Canning Basin. The project represents one of the world’s largest undeveloped zinc projects – which is crucial at a time of ageing mines. Essentially, decades of under-investment in the zinc industry (a metal often seen as problematic by investors) has provided a window of opportunity for Metalicity.
Admiral Bay is a Mississippi Valley Type (MVT) system, with published JORC 2012 compliant resources of 72Mt @ 3.1% Zn, 2.9% Pb and 18g/t Ag (6.7% ZnEq). It is one of the largest deposits of this type in the world and is one of the largest undeveloped zinc projects globally.
MVT mineralisation is a well-understood style of mineralisation, and work to date at Admiral Bay has intersected thick, flat-lying zinc-lead mineralisation in most holes over an 18km mineralised trend, including a coherent resource thus far defined over a strike length of 2.1km. Although deep (at around 1,200m below surface) any future mining should be reasonably simple.
Relatively simple metallurgy is also a feature of MVT systems, with results from earlier work at Admiral Bay indicating recoveries of up to 96% for zinc and 98% for lead – both to high quality concentrates with very low impurities.
Metalicity has commenced the Scoping Study for Admiral Bay at an expected cost in the order of $5m, with delivery of the study likely in early to mid-2016. This work will include a re-interpretation of the current resource, which the company expects will result in a resource expansion. No drilling is planned for this study.
As part of the Study, Metalicity will be looking at innovative exploration and mining technologies. On the exploration side this will include directional drilling, and the use of predictive ore-body modeling. On the mining side the use of tunnel boring machinery for sinking of a decline is also to be investigated, in addition to more conventional decline and shaft development methods.
Summary
Metalicity is potentially in the right place at the right time with respect to Admiral Bay. On a world scale, Australia is an ultra-safe place to do business, which is important in terms of attracting the sorts of longer-term investors that the project will require. Resource upside must be considered strong, given the current JORC 2012-compliant resource encompasses just 2.1km of the currently-defined 18km mineralised corridor. Potential project economics are also helped by the recent falls in the Australian dollar, which have pushed up A$-denominated metals prices whilst also lowering capex and operating costs. Accordingly, the time is right to introduce Metalicity.
