Since taking the reins at NorZinc (TSX: NZC) in 2018, CEO Don MacDonald admits he has spent more time than he expected on permitting. But with all the major permits now in hand to put the Prairie Creek zinc-lead-silver project into production, he’s excited to dig into the technical aspects of the project in 2020.
“There’s a lot of value creation that can be done on this project in the next 12 months,” MacDonald says in a telephone interview with The Northern Miner.
The final pieces of the permitting puzzle came in November 2019, when NorZinc got the OK to build an all-season access road to site, 500 km west of Yellowknife. The 170 km road passes through the Nahanni National Park Reserve, which surrounds the property, so the company had to get Parks Canada to sign off, as well as the Mackenzie Valley Land and Water Board.
The company plans to build a winter road and then upgrade it to an all-season road with culverts, bridges and surfacing ahead of production.
The road permits came a little later than expected, MacDonald says, so phase-one winter road construction may not begin in the first quarter of 2020 as planned. “The window to construct is January through March. Once you get into the latter part of March, the spring comes in, the freshet comes in and potentially you can’t finish the road.”
Either way, MacDonald says, he’s glad to get past the permitting stage. NorZinc has added people to its team with an eye towards development, including a new chief financial officer, project manager and board members.
Financing activity was put on pause when MacDonald joined the company, but now it’s back to work on that front, he says. The company could sell a silver stream. “There’s a substantial amount of silver and there are very few large silver streams available in the market.”
NorZinc has pursued a two-phased financing approach, but MacDonald says his view has shifted towards a global financing package. “For 2020 I am thinking we might put together a comprehensive package a bit earlier than I had previously anticipated.”
In 2017, the company (then named Canadian Zinc) completed a feasibility study on Prairie Creek. The study outlined a 15-year, 1,600-tonne-per-day underground mine producing 95 million lb. zinc, 105 million lb. lead and 2.1 million oz. silver for $111 million in earnings before interest, tax, depreciation and amortization annually for the first decade of production, and $81 million annually over the full mine life.
According to the study, Prairie Creek has a $188-million, after-tax net present value at an 8% discount rate with an 18.4% internal rate of return, assuming prices of US$1.10 per lb. zinc, US$1 per lb. lead and US$19 per oz. silver.
MacDonald says the company will likely issue an updated feasibility study in 2020.
“We have a 15-year mine life with the current reserve. And with our current resource, which is almost identical to our reserve, we have the likelihood of up to another 15 years,” he says. “From an economic standpoint, expanding the throughput — even doubling the throughput — is something that should be looked at closely.”
Prairie Creek has 8.1 million tonnes in proven and probable mineral reserves grading 8.64% zinc, 8.1% lead and 124.22 grams silver per tonne.
Excluding silver credits, Prairie Creek’s reserves are a combined 16.74% zinc and lead, which NorZinc says is third best amongst undeveloped deposits in the world (excluding China and Russia), behind only Ivanhoe Mines’ (TSX: IVN) Kipushi deposit in the Democratic Republic of the Congo and the Dairi deposit in Indonesia, owned by Bumi Resources and Antam.
Additionally, Prairie Creek has an inferred resource of 7 million tonnes grading 11.3% zinc, 7.7% lead and 166 grams silver per tonne.
The property hosts mining infrastructure that includes a processing plant, 1.5-million-tonne tailings impoundment, power plant and a water-treatment plant from a silver mine built in the early 1980s, but never hit production. NorZinc plans to renovate and upgrade the facilities in line with its development plans.
MacDonald, who has a background in engineering and accounting, started out with gold companies and dabbled in diamonds before joining base metal miner Quadra FNX as chief financial officer in 2010. When KGHM took over Quadra FNX in 2012, he filled the same position for the Poland-based conglomerate’s international division, where he eventually served as acting CEO until retiring in 2017.
MacDonald was drawn out of retirement by the challenge of putting Prairie Creek into production, and working with zinc and lead, which are relatively new commodities to him.
He likes the metal mix at Prairie Creek and is bullish on long-term zinc prices, which give the project some “sizzle.” MacDonald says zinc faces a production gap in 2022–2023, around the time the mine would hit production.
“Lead is a very stable commodity. It rarely wavers from between US80¢ and US$1.20 per lb., which could be regarded as being boring, but it gives you stability of cash flow. And probably 40% of our cash flow will be coming out of lead.”
And he says the company wants to retain exposure to the silver price, even if it does a streaming deal.
“As CEO I’m leveraging both my engineering and finance backgrounds,” he says.
After spending the latter part of his career dealing with multibillion-dollar projects, MacDonald says that Prairie Creek, with its $300-million cost, is a “much more manageable bite to take.”