Kootenay Zinc Corp hunts Teck Resources Ltd’s Sullivan Doppelgänger
Kootenay Zinc Corp (CNSX:ZNK) (FRA:KYH) has a simple value proposition: locate and develop the geological extension to what was, under the ownership of Teck Resources Ltd (NYSE:TECK) (TSE:TCK.B) the most prolific SEDEX silver lead zinc deposit in Canadian history.
That might not mean much to non-geologists in the crowd, but to those who do know – which thankfully includes the management team of Kootenay – the Sullivan Deposit, owned and operated by Teck Resources and its corporate precursors, is/was one of the most studied geological assets in world history. Sullivan was discovered in 1892 and was known to be one of the largest SEDEX deposits in the world. Over its 100-year lifetime, Sullivan produced approximately 150 million tonnes of ore, including three billion ounces of silver, eight million tonnes of zinc and eight million tonnes of lead. In today’s terms, that’s worth $49 billion. Besides those primary metals, it also produced Tin, Copper, Gold, Iron, Sulphur, Antimony, Cadmium, Bismuth, Indium, and Tungsten….a veritable jewelry box.
So you can imagine now why a company might be so interested in finding a Sullivan doppelgänger. Kootenay Zinc thinks their Sully Project could be exactly that.
It sits a mere 30 miles east of the original Sullivan mine in southeastern British Columbia near Kimberley, B.C. What makes the proposition of a continuation of the Sullivan credible is not just its proximity, however. In a story published by Canadian Mining and Energy last year, Dr. David Broughton, senior technical advisor for Kootenay Zinc said, “The coincidence of multiple large gravity anomalies with strata of Sullivan-equivalent time makes the Sully project very compelling. The project team appears to be closing in on discovering the source of the gravity anomalies.”
Project geologist and 30-year veteran of large silver-lead-zinc mines Paul Ransom agrees. “The Sully Project presents the best exploration target of Sullivan Size that I have seen in my career”.
Ransom’s career includes 33 years with first Cominco and what is now Teck Resources Ltd, with much of that spent working at the old Sullivan Mine.
The mine’s historical importance to Canada cannot be overstated. During World War II, it played an essential role in supplying critical materials to the Allies.
The mine was first discovered in 1892, and had been in more-or-less continuous production since it opened in 1900 until its closure in 2001, but for a brief closure in 1907 due to low lead prices. It was the largest single producer of silver in British Columbia’s history.
Sullivan is a “SEDEX” deposit, anagrammatical for “sedimentary-exhalative”. In layman’s terms, it refers to mineral bearing hot fluids pushing up from the earth’s depths into what were once ancient water bodies (usually oceanic) and thus causing the mineral content to precipitate out into sedimentary layers before being covered over time. The world’s largest silver-lead-zinc deposits are generally SEDEX in nature.
According to a US Geological Survey report, Sedex deposits account for more than 50 percent of the world’s zinc and lead reserves and furnish more than 25 percent of the world’s production of these two metals. More than 129 deposits of this type have been recognized in sedimentary basins around the world.
The Investment Case for Zinc
Most investors are unaware that zinc has been among the best performing assets in the world, not just among commodities.
After a sustained period of low prices from 2010 until 2015, the inevitable production shut-downs caused an incrementally growing shortage on the supply side, weak global economy notwithstanding. By the end of 2015, savvy speculators were beginning to comprehend that the closure of multiple mines simultaneously had catalyzed a bottleneck that was going to see that shortage exacerbated, and that is in fact what has occurred.
The inevitable bandwagoneers who cottoned on to the concept took the price much higher, and so here we sit at the crossroads of an under-invested past looking into an undersupplied future – the perfect storm for a continuation of strong pricing.
Zinc’s principle use as is the anti-rust galvanizing for steel. Considering U.S. President Donald Trump’s much publicized commitment to “$1 trillion investment in American infrastructure”, that price/supply relationship looks poised to remain acute.
Goldman Sachs forecast for zinc in May 2016 for its six and 12-month outlooks were boosted to $2,100 a metric ton from $1,700, while the three-month call rose to $2,000 from $1,800, analysts including Max Layton said in a May 19 report. Zinc for three-month delivery was at $1,868 a ton on the London Metal Exchange on May 19, 2016.
According to Bloomberg today, zinc’s 3-months-out delivery price is US$2,800 a tonne, demonstrating in no uncertain terms that even the bulls were not quite bullish enough. The spot price sits today at just over $2,700, suggesting there could be a lot steam left to the upside.
Goldman Sachs remains positive on the outlook for zinc demand, citing expectations that China could deploy a 2008-era stimulus of its own toward infrastructure. “The resulting acceleration in metals demand is expected to push the copper market, as well as other base metal markets such as nickel and zinc, into deficit, leading to inventory draws, a tightening of the futures curve spreads, and higher prices,” the bank’s analysts including Mikhail Sprogis and Jeffrey Currie wrote in the note dated Feb. 16.
Catalysts to Drive Kootenay Zinc
The Sully Project’s exploration efforts until this new management took over late last year could best be categorized as a series of near misses. Despite strong geophysical indications of the presence of two distinct large anomalies that bear the signatures of Sullivan-style strata mineralization, the drill programs of the past have failed to intercept the expected target. This led the current team to take a bit of a different tack. According to Broughton, “The coincidence of multiple large gravity anomalies with strata of Sullivan-equivalent time makes the Sully project very compelling. The project team has advanced geophysical exploration and drilling in a systematic, thoughtful and efficient way, and appears to be closing-in on discovering the source of the gravity anomalies.”
The result is the drill program now underway which will test the current model of gravity data as a stratabound feature constrained by the most recent detailed structural and stratigraphic trends determined from drilling in late 2016. Mr. Brian Jones, principal of Excel Geophysics and advisor to the Company, stated in a recent press release, “Every additional gravity survey at Sully has confirmed the presence of significant size masses on the property; recent gravity modeling which evaluated the complex structural trends in the local area of E1 has also maintained the inferred size while more narrowly constraining location of the target.”
For investors, the upside is self-evident: if the company intercepts Sullivan style mineralization in a setting that mimics the geological setting of that historic deposit, there is every likelihood that company’s shares could become the focus of larger companies’ acquisition efforts, as the jockeying for control over such an important discovery begins. I am obliged to point out that there is no existing 43-101 resource, and so the company will be very much relying on a successful drill program to establish the Sully Project as an asset.
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