Ironbark Zinc Limited’s (ASX:IBG) Citronen Zinc project in Greenland has the potential to be a globally significant zinc project with substantial exploration upside, according to Perth-based broker Patersons.
Patersons has retained its Speculative Buy rating for Ironbark with a 12-month target price of $0.14 per share. The following is an extract from Patersons’ research note:
Globally significant zinc project
The Citronen project is a globally significant zinc project with a contemplated 14-year mine life and peak production rate of about 200,000 tonnes per annum (tpa) of zinc metal.
Based on our price forecasts, we estimate the project generates an average of >US$100 million per annum in free-cash generation over 10 years with a payback period of about 4.5 years.
READ: Ironbark Zinc crosses a major milestone by proving shipping access to its project in Greenland
In addition, the deposit has exploration upside.
Ironbark has published an exploration target of 302-347 million tonnes (mt) at 4.4-5% zinc over the 11 kilometres of strike of known mineralisation which suggests a potential mine life of over 100 years is possible at contemplated production rates (about 3.3 mtpa).
The exploration target exceeds the last published mineral resource of 70.8 mt at 5.7% zinc+lead.
Funding the key to unlocking value
We see funding as the key for Ironbark to unlock value from the Citronen Zinc project.
Upfront capital costs are estimated at US$514 million. We have assumed a highly dilutive 30% equity raise at the current share price with 70% funded via debt.
In reality, Ironbark may look to sell down part of its equity in the project to a partner and receive assistance to raise the remainder with debt.
In addition, Ironbark is targeting supplier financing for key items such as the mining fleet (recently entered in an agreement with Byrnecut Mining), the processing plant, power station, ship loader and fuel farm.
Site visit update
We recently visited IBG’s Citronen Zinc project located in northern Greenland. Our key takeaways are:
• Financing is the key to unlocking the projects value;
• the project has significant scale;
• initial site works are underway;
• sheltered fjord and shipping pathway is available; and
• there is potential for cost savings opportunities/capital cost savings.
Initial site works underway
Whilst at site we visited the proposed portal location which has been marked out.
Proposed Portal into the “Beach Zone”
Assuming financing this should allow construction to commence in mid-2019 which would allow first production to commence in late 2020/early 2021 (given the 18-24 month construction time).
Valuation: $0.14 per share
We have decreased our valuation to $0.14 per share (from $0.26 per share) based on our revised zinc price forecasts and incorporating the lower Ironbark share price.
We feel the decrease in the zinc price is overdone and should return to about US$1.25 per share long term to encourage further supply.
Concluding further vendor financing transaction and entering into a strategic partnership could result in an upward re-valuation.
Ironbark Zinc will be among a number of Australian companies to join the Government of Greenland at the free walk-in event Greenland Day Perth on Wednesday, October 23 at the University of Western Australia’s University Club in Crawley. To view a program, click here. To RSVP or request a one-to-one meeting with a government official, email Dr Anna Vass at anva@nanoq.gl.