Worth Watching: Ironbark Zinc Limited (ASX: IBG)
The company has 539M shares on issue, and at the last traded price of $0.077, a market cap of $42M. It has traded between $0.115 and $0.054 over the past 12 months. At 31 March 2017, the company had cash of $2.8M and no debt. It spent $1.57M in the 9 months to March, of which $0.79M was spent in the March quarter.
The largest shareholder is Nyrstar NV with 19%. Nyrstar was formed in 2007 through the merger of Zinifex, an Australian mining company, and Umicore, a Belgium materials company. The second largest shareholder is Glencore with 9%. Glencore is involved in all aspects of metals production and is also involved in energy and agriculture. Board and management hold 5%. This is a strong vote of confidence by Nyrstar and Glencore in the company’s Citronen zinc project.
In September 2011, the company entered into agreement with China Nonferrous Metal Industry (“NFC”) to deliver an Engineer Procure and Construct (“EPC”) contract to develop the Citronen project. NFC will also assist with debt financing and has the right to take up to 19.9% of Citronen.
The board is capable and experienced. Non Executive Chairman Peter Bennetto has a background in investment and banking, Managing Director Jonathon Downes is a geologist with extensive corporate experience. Non Executive Director David Kelly represents Glencore and Non Executive Director Jason Dunning represents Nyrstar. Non-Executive Director Gary Comb is an engineer with extensive experience in the resource sector.
Ironbark has two projects in New South Wales and three projects in Greenland. However, by far the most important project is the Citronen zinc project in northern Greenland. It is the primary reason why you would consider an investment in IBG.
The project hosts a substantial resource, although at a relatively low grade. However, there is a high grade part to the resource.
The JORC 2012 resource:
70.8M tonnes @ 5.1% zinc @ 0.5% lead, including
29.9M tonnes @ 7.6% combined lead and zinc
The resource remains open, the company has an exploration target of 132Mt @ 4.4 – 5.0% zinc + lead.
A feasibility study completed in 2013 returned an NPV of USD609M before tax and an IRR of 32%. Total costs were USD0.71/lb (USD1562/Mt) with a payback period of 18 months. The study assumed a zinc price of USD0.835/lb (USD1837/Mt). The feasibility is being updated and I would expected that we will see an improvement in the NPV.
Two very strong shareholders in Nyrstar and Glencore, and an agreement with NFC regarding construction and finance, should mean that development of Citronen is a no-brainer. However, the company has held the project for at least 10 years, and the NFC agreement was entered into about 6 years ago. This suggests that there are one or more issues that stymie development.
However, the presence of the above companies after all this time suggests that whatever the issues are, they are not insurmountable. Perhaps it is the zinc price. After peaking at USD4,380Mt in December 2006, it fell to USD1,110Mt in December 2008. It subsequently traded in a band between USD1,500/Mt and USD2,330Mt until this year’s increase to above USD2,500/Mt, as shown below.
If it is the zinc price that has held up development, the current and projected zinc price would appear sufficient to justify development . This company is definitely worth watching, as I am sure it will be significantly re-rated should finance be in place and development goes ahead, a takeover launched, or a strong joint venture offer accepted. Particularly since the market cap is only 7% of the NPV.