Since Ascendant Resources (TSX: ASND; US-OTC: ASDRF) acquired the El Mochito zinc-lead-silver mine from Nyrstar for just US$500,000 in December 2016, the company has increased production 81% and cut costs 30%.
The junior zinc miner also started generating free cash flow in the fourth quarter of 2017, after a rigorous, nine-month overhaul of operations at the underground mine, which has produced in northwestern Honduras since 1948.
“We are miners and they are smelters,” the company’s president and CEO, Chris Buncic, said of Nyrstar. “When we went in and looked at it, we saw an immense amount of opportunity to go in and fix things.”
Fix them they have.
Under Ascendant’s 100% ownership, the mine moved from 38,521 tonnes milled at a cost of US$112.21 per tonne in January 2017 to 69,578 tonnes milled at US$77.80 per tonne in December 2017.
For the year, El Mochito produced 66 million lb. zinc equivalent, exceeding its 65.79 million lb. guidance.
It did so, Buncic says, by going back to basics.
The company boosted truck availability 20%, increased productive hours 40% and improved ventilation volumes 23%.
“We turned this operation around with a little TLC and with some investment in new equipment, and getting back to mining 101,” Buncic says. “Because this is our only asset [where] we’ve been able to really focus on these things.”
Some of the improvements involved operator training and supervision, work on its fleet of equipment — with an emphasis on preventive maintenance — rearranging shifts and adding a fourth shift to the roster, and maintaining roadways to lower wear and tear on the trucks.
Because the mine has operated for 70 years, there are third- and fourth-generation miners who got used to doing things a certain way, Buncic says, and because of a high turnover among general managers, “a lot of initiatives got lost, forgotten or abandoned.”
In addition, Ascendant has nearly tripled the contained zinc in mineral reserves, extending the life of the mine beyond seven years (at a rate of 820,000 tonnes per year). The mine had never had a reserve life drilled out on it beyond two years, Buncic says, so to achieve a seven-year mine life on proven and probable reserves, and 13 years based on measured and indicated resources, after owning the mine for such a short time, underscores Ascendant’s strengths and the quality and potential of the deposit.
Proven and probable reserves measure 5.79 million tonnes grading 4.7% zinc, 1.6% lead and 38 grams silver per tonne (6.6% zinc equivalent) for 597 million contained lb. zinc, 100 million contained lb. lead and 7.2 million contained oz. silver (841 million lb. zinc equivalent).
Measured and indicated resources stand at 7.55 million tonnes grading 5.2% zinc, 1.7% lead and 44 grams silver (7.3% zinc equivalent) for 869 million lb. zinc, 289 million lb. lead and 10.7 million oz. silver (1.22 billion lb. zinc equivalent).
Inferred adds 4.97 million tonnes grading 5.1% zinc, 1.4% lead and 33 grams silver (6.7% zinc equivalent) for 556 million lb. zinc, 156 million lb. lead and 5.4 million oz. silver (739 million lb. zinc equivalent).
“When we bought El Mochito it only had a year and a half of proven and probable reserves, and with just 30,000 metres of drilling last year, we’re able to put out 2P reserves for a seven-year mine life,” Buncic says.
“There’s a lot of resource there and a long history of converting resources into reserves, as well, based on the deposit’s carbonate-replacement geology.
“It’s a continuous, flat-lying mantos deposit following four or five trends for seven decades. They just drilled out these trends further and further, so we see a lot of opportunity to continue to do that, but also to find more high-grade material in the chimneys and add it to the mine plan.
“There’s a lot of exploration opportunity as a result of there not being a lot of exploration over the last five or six years, and as we’re opening up new areas to drill from, that’s part of our plan,” Buncic says, noting that the company is drilling 40,000 metres this year.
The drilling will be folded into an updated reserve and resource estimate in early 2019.
About 20,000 metres of the program will be definition drilling for resource conversion, and the other 20,000 metres will be exploration drilling to define more material near the mine and other regional targets.
This year the company will target four orebody extensions: Palmar Dyke, Santa Elena, Victoria and Esperanza.
The Palmar Dyke, Santa Elena and Victoria areas are close to existing workings and could be accessed within six to 12 months, while the fourth, Esperanza, is already being mined, and drilling there shows another extension with similar grades.
“We have a high degree of confidence that exploration potential is so great that we’re comfortable that we’ll be there for a long time. We just have to go and do the work to drill that out,” he says. “But that will be an ongoing process over the next decades to come.”
Ascendant also benefits from the mine’s production history, in terms of community relationships.
“Given that the town of Las Vegas grew up around El Mochito, we have a lot of impact on the local town, and that’s a very important consideration,” Buncic says, adding that the country has hosted substantial precious metals mines as far back as the 1800s.
The mine is in southwest Sula Valley on the western edge of the Honduras Depression in the country’s Central Cordillera, 88 km southwest of San Pedro Sula and 220 km northwest of the capital city, Tegucigalpa, which means “Silver Hill” in the local dialect.
It is a two-hour drive from the mine to the international airport, and paved roads extend into the site.
El Mochito is hosted in a 6,000-metre-thick, Mesozoic sedimentary basin that crosses the country from east to west.
The mill operates at 2,300 tonnes per day, and zinc and lead concentrates are trucked daily to Puerto Cortes for storage, and shipped once enough material is stockpiled.
This year, the company expects to produce 93 to 109 million zinc equivalent lb. at US$70 to $80 per tonne.
Its guidance calls for US$14 to US$20 million in free cash flow and earnings before interest, taxes, depreciation and amortization of US$32 to $40 million.
Nyrstar has a nine-year offtake agreement with Ascendant.
El Mochito represented 3% of Honduras’ total exports in 2014, according to the most recent statistics available.
Standard & Poor’s raised the country’s credit rating last July from B+ to BB-, and changed Honduras’ risk outlook from stable to positive.
The company’s shares have traded in a 52-week range of 59¢ to $1.23, and at press time were $1.10. Ascendant has 74 million shares outstanding for an $81.6-million market capitalization.
Buncic says he expects the stock will rerate again as the company continues to execute positively.
“We are really the only pure-play junior zinc producer,” he says. “We’re the only public junior that people can play if they want to invest in zinc, and we’re trading at a significant discount.”