Ironbark Zinc proving up world’s largest zinc deposit

Ironbark Zinc's (ASX:IBG) flagship project is the Citronen Zinc-Lead project located in the mining friendly European nation of Greenland.

The wholly owned Citronen base metal deposit in Northern Greenland currently hosts in excess of 10 billion pounds of zinc and lead. The current JORC compliant resource for Citronen is: 55.8 million tonnes at 6.1% zinc (Zn) + lead (Pb).

The presence on the Ironbark share register of Nystar, the world’s largest zinc refiner with a 31% stake is telling - and takes away significant financing and off take risk - increasing the probability that Citronen will be brought into production.

Recent drilling has intersected high grade zinc, the highest grades to date at Citronen. Drilling has attempted to potentially link the major mineralisation at Discovery and Beach Zones. At this stage, Citronen shows no limitation in scale.

The resource estimate for Citronen is expected to be upgraded, based on 2010 drilling to date and delivered late in 2010.

The Definitive Feasibility Study (DFS) is due for release in December 2010 and is on track and on budget.

Recent Highlights:

- Hole  CF10_249 intersected 16 metres @ 20.8% zinc within a broader intercept of 29.4 metres @ 13.4% zinc from 69.5 metres down hole
- The preliminary open pit mineable inventory has been revised upwards and may now represent 10 million tonnes of mineralised feed
- The ore to waste ratio in the first year is estimated at a very low at 1:1.1
- The cost for the open pit mining is estimated at US$ 2.70/tonne moved
- Metallurgical zinc recoveries of 90% have been achieved using conventional grinding and flotation circuits.  Metallurgical test work is continuing at AMMTEC’s Perth and Tasmanian laboratories.
- A capital raising of A$15,000,000 was completed to Nyrstar International BV, the world’s largest zinc producer at 35 cents per share. Nyrstar now owns 44.8 million shares of Ironbark, or 30.5% of issued capital
- Hole 249 returned the highest grade and highest contained zinc intercept of any drill hole of over 62,000m drilled to date at Citronen and are outside quoted resource areas

Background:

Ironbark has projects in northern and eastern Greenland, targeting base metal deposits (Citronen and Mesters Vig) as well as exploration prospects in Washington Land and Navarana Fjord.

The resource at Citronen is contained within near surface and underground prospects known as Esrum, Beach Zone and Discovery Zone that are laid out over a 12 square kilometre strike line contained within mineral lease 2007/02.

The mineralisation is considered to be of a SEDEX style zinc deposit and this model is potentially very large. The mineralisation starts from surface, is shallow, flat lying and adjacent to a deep water fjord that may provide near mine ship docking and loading opportunities.

At this stage Citronen shows no sign of limitation in its scale.

Citronen is ideally situated for mining, located next to deep water, suitable for quick shipping of equipment and supplies and loading ore concentrates for refining elsewhere. The nearby deepwater fiord offers shipping potential during summer months.

Ironbark continues to drill at its Citronen Zinc-Lead property in Northern Greenland, after raising A$15 million from Belgium-based Nyrstar (Brussels: NYR). Nyrstar is the world’s largest zinc refiner and now owns 31% of Ironbark. Funds will be used to complete 2010 drilling program, an important part of its bankable feasibility study

As part of the acquisition, Nyrstar acquired a life of mine off-take agreement in relation to 35% of the production of the Citronen Zinc-Lead deposit once commercial production commences. 

In 2007, Nystar combined zinc smelting and alloying operations of Australian based Zinifex and Belgian based Unicore. In 2009 Nyrstar changed its business plan and started buying mines so that they could capture more of the profit stream from the production of metals.

Ironbark’s Citronen project is a major strategic fit, as Nystar is bullish on zinc and the project will be capable of supplying very substantial quantities of zinc and lead in the medium and long term.

The indicated and inferred resource at Citronen is 101.7 million tonnes at 4.1% zinc and 0.6% lead, at a cut-off grade of 2% zinc.

Major international resource investor, Glencore International AG, continues to hold 42.1 million shares, or 13.8% of Ironbark issued capital. The holdings of Glencore and Nystar attest to the quality and regard these major scale companies have for the Citronen project and Ironbark team.

Current Status:

Ironbark management have indicated that the current resource base, while still growing, is of sufficient size to support a long life mining scenario. The field work supporting a DFS at Citronen is expected to conclude towards the end of 2010.

Engineering, environmental, metallurgical work and the largest field season ever conducted at Citronen, is currently underway to meet this goal.

The current drilling program encompasses conceptual targets around the defined resources and drill holes at Esram Extended, Esram South, Beach, Trilobite Valley, Discovery, Discovery North, Western Gossan and East Zone.

It is conceivable that the target mineral inventory will be significantly larger than previously interpreted as geologists have identified the Esrum central feeder zone located on the far Western margin.

According to Ironbark, total size of the resource may ultimately increase to a massive 400 million tonnes. Ironbark has been reporting high grade drilling results since the current program got underway and is assumed that that the tonnage calculations will get a very significant lift after drilling ceases at the end of September.

Ironbark has stated that it will take several seasons to fully define the mineral inventory. This does not take into account the exploration potential contained in additional leases around lease 2007/02 covering 2,600 km². 

There is an Exploration Target of 302Mt to 347Mt @ 4.4 to 5.0% zinc + lead for a combined total of up to 36 billion pounds of zinc and lead metal (at a 2% zinc cutoff).  This would represent an increase of 240% over the current resource base and would rank Citronen in the “Super Giant” category as proposed by industry experts Goodfellow and Lydon,

The current development program is funded by Nyrstar when it took up a 19.9% stake in Ironbark last year.

Ironbark remains committed to moving toward commercial production within the next 3 to 5 years. Ironbark is in a strong working capital position with A$16 million of cash in the bank at quarter end. This is a cushion against short term weakness in zinc prices.

The massive size of the Citronen Deposit clearly indicates it will have a production profile in the low millions of tonnes per year.

With no further fundraising anticipated until major project financing, this ensures the tightness in issued capital and strong leverage to major news flow.

Zinc Market:

Most recent zinc price was US$2,248, having earlier hit its highest price since early May at US$2,284.75.

A number of large zinc mines are likely to close over the next five years, including Brunswick, Lisheen, Century and Skorpion, and there were few large projects under development, which indicated that prices were likely to rise as supply tightened, making the development timetable for new mines "opportune".
In addition, with forecasts of a looming zinc shortage, it is expected this will create an excellent environment to support the development of zinc mines in the near future (Credit Suisse report).

The coincidental closure of major zinc mines through depletion in the near future coupled with very limited new mine developments is expected to set the scene for a robust zinc price.

Credit Suisse also maintains a very bullish view of long term zinc prices. They see an exponential increase in the production of galvanised steel capacity as demand moves from infrastructure development to consumer led demand in developing nations.

Developed nations provide 70% of demand for zinc but developing countries including China are expected to substantially increase spending on consumer products which will double their share of the galvanized steel market. This demand will shift steel production from heavy steel parts to high quality flat steel that requires greater quantities of zinc to manufacture products such as cars, white goods and residential buildings that consume lots of galvanised steel. Credit Suisse pegs this demand at an additional 6 million tonnes of zinc by 2016, which dovetails neatly with Ironbark’s timeline to production at Citronen.

An aggressive drilling and resource development program is underway at Citronen utilising four drill rigs at a rate of A$5-6 million per quarter, which will lead to a Bankable Feasibility Study prior to the end of the current financial year.

Risks:

- Environmental. The key risk to the schedule is the time for the environmental leaching tests to be completed, potentially a pre-condition for submitting the Environmental Impact Assessment
- Cash costs rising
- Zinc price falls
- Execution delays

If its cost structure is at the lower end of the recent current scale (US$1,500 - $1,800 per tonne) or even lower (approaching the costs earlier in the decade) then the Citronen Deposit will provide investors an enormous leverage opportunity to a market of rising zinc prices.

Investors with a patient, long-term positive view of zinc should not overlook Ironbark at current price levels, given that 10.5 billion pounds of mostly zinc metal are behind the stock.

Valuation:

Catalysts to Valuation Growth

- Drilling results
- Upgrade in Resource Inventory at Citronen
- Definitive Feasibility Study results

Ironbark has issued 320,392,667 shares that are currently trading at A$0.23 for a market capitalization of A$73.7 million. This puts a valuation on mineral assets at A$59.0 million after deducting the June Quarterly cash balance of A$16.9 million.

By comparison, largest Ironbark shareholder, Nystar recently signed a deal with Talvivaara Mining Company of Finland to acquire 1,250,000 tonnes of zinc in concentrate form for US$335 million or US$260 per tonne, or US$71/tonne. This is indicative of the type of valuation that Ironbark’s largest shareholder may place upon its strategic investment.

Talvivaara has an Indicated and Inferred Mineral Resource of 5 million tonnes of contained zinc mineral resource.  This implies an acquisition multiple of US$67/tonne.

Terramin’s (ASX: TZN) main zinc deposit has a mineral resource of 68.6 million tonnes of ore at 4.6% zinc and 1.1% lead as of November 2009 and a Probable Ore Reserve of 24.1 million tonnes at a grading of 5.9 zinc and 1.7% lead. Terramin owns 60% of the project.

This implies an EV/Resource (US$/tonnes) for TZN of US$46.

By comparison, Ironbark’s Citronen has an estimated contained zinc resource of 3.4 million tonnes. Yet, it trades on an EV/Resource of just US$17.1/tonne. In addition, this ascribes zero value to potential upgrades likely this year and next at Citronen.

Ironbark’s current capitalisation gives an enterprise value of approximately A$7.50 per tonne of currently inferred and indicated resource of 4.5 million tonnes of zinc.

Nystar acquired its recent holding in Ironbark at A$0.35 per share each, investing A$15.0 million. This gives an idea as to upside expected by Nystar in Ironbark.

However, with an exploration target of 302Mt to 347Mt @ 4.4 to 5.0% zinc, the current valuation for Ironbark appears singularly conservative.