Consolidated Zinc Ltd (ASX:CZL) shares doubled on news of the start of mining of high-grade mineralisation at the Plomosas Zinc-Lead-Silver Project in northern Mexico.
Shares hit an intra-day high of 1.6 cents on strong volume of more than 34 million.
The start of mining follows the company entering a processing and offtake agreement with major Mexican mining house Grupo Mexico, the world’s fourth largest copper producer.
READ: Consolidated Zinc secures funding to assist with restart of Mexican zinc project
This agreement will see Plomosas ore processed through the Grupo Mexico plant at Santa Eulalia with resulting concentrate sold and delivered to that company’s San Luis Potosi smelter.
CZL’s CEO Brad Marwood said, “Since joining the company, my focus has been on the transition of CZL from explorer to producer.
“The board’s decision to commence mining, having secured toll treatment and concentrate offtake agreements is a low-risk, fast-return option that will see mining re-established for a low capital cost.
“Toll treatment through a proven process plant provides benefits from the efficiencies of scale and eliminates permitting and construction delays and costs.”
Mining of the high-grade Tres Amigos mineralisation will follow the mine schedule prepared by Cube Consulting Pty Ltd.
Mexican mining contractor Servimin Sara was mobilised to start mining the high-grade Tres Amigos mineralisation from level 5 where there is immediate access.
This contractor has worked previously at Plomosas providing ground support and exploration mining activities.
Servimin Sara will initially mine 3,000 tonnes of high-grade mineralisation in the first month, ramping up to 7,500 tonnes per month by the end of December 2018.
First zinc sulphide will be processed in September and October will be the first full month of high-grade feed delivery to Santa Eulalia.
Typical Plomosas high-grade zinc.
READ: Consolidated Zinc on track to start operations at Mexican project this year
Marwood said, “We expect to bed down the operations quickly to enable ongoing exploration that will support production for the coming years.
“Recent exploration success has been significant and I anticipate that we will continue with more discoveries at Plomosas that will underpin CZL’s future.
Exploration successes
“The opportunities and several targets have been identified and can now be funded.
“We look forward to working with Grupo Mexico which has an impressive record in Latin America, and hope to continue developing opportunities together.”
The Plomosas feed will be batched through the plant for a few days each month in batches of 2,500 tonnes.
The Plomosas project in relation to Grupo Mexico’s Santa Eulalio operations.
The Grupo Mexico agreement will be reviewed annually after the first trial month batch.
Financing package
CZL has secured a finance package on attractive terms by way of convertible notes totalling $1.25 million over 12 months, extendable to 24 months by mutual agreement, at an interest rate of 10% per annum.
This funding will enable CZL to commence mining at Plomosas and meet working capital requirements until the operations deliver cashflow.
The agreements with Grupo Mexico will allow CZL to begin production for a minimal start-up capital expenditure and fast-track first revenues from the Plomosas mine.
CZL is confident that the first cashflow can be achieved for a capital cost less than US$500,000 and the C1 operating costs are expected to be less than US$0.50/pound zinc after by-product credits.