It is always interesting to find out how a mining company comes to have an opportunity. Ascendant Resources (TSXV:ASND) owns and operates a zinc-lead-silver mine in Honduras. We asked Chris Buncic, the President and CEO how that happened.
“We knew that the big European smelting company, Nyrstar, was looking to exit the mining business. It had ten mines and we looked at three of them – ultimately pursued the El Mochito property in Honduras” said Buncic.
It was more than a bit of a gamble. In May 2016 zinc, the principal mineral at El Mochito, was trading at $0.65 a pound and was looking like going to $0.50.
“We did well in the negotiations for the El Mochito mine,” said Buncic. “We have a ten-year industry standard off-take agreement with Nyrstar and a fully operating mine. We raised the money in October 2016 and closed the transaction in December 2016.”
The timing was remarkable. From the point where negotiations began in May 2016 to the present, zinc has gone from its low of $0.65 to a current price of $1.30.
“We’re excited by the long-term prospects for zinc,” said Buncic. “Several major zinc mines have already closed and several more will in the next few years and worldwide inventories of zinc are falling. This creates a solid basis for strong and rising zinc prices.”
With mine closures and dwindling production creating a very strong market for zinc, it would be reasonable to suppose that new mines will come online or that the Chinese will increase production at their mines. Buncic sees the market differently, “It would take three or four years for a new mine to be put into production, and the Chinese are unlikely to significantly increase production as they did in the last cycle due to environmental concerns of encroaching populations.”
Which creates a very strong operating environment for Ascendant’s already operating mine. But there is work to be done.
“Due to underinvestment at the mine prior to the transaction, El Mochito is operating below capacity said Buncic. “No critical issues with the operation, but we need to get production up.”
The mill at the mine is capable of concentrating 2,300 tonnes per day (tpd). The mine’s hoist can bring 4,000 tpd to the surface. However, production at El Mochito in December 2016 was 1,500 tpd rising 17% to 1,733 tpd in March.
“We want to be at 2,200 tonnes per day by the end of the year,” said Buncic.
While there is new “used” equipment on the way to the mine, Buncic sees communication and planning as key to the production increase.
“We’ve gone from a failure maintenance program to a preventative maintenance program,” said Buncic. “We’ve also moved to a “hot seating” program with our trucks with four eight-hour shifts in a day. The travel time for our miners from surface to the face can be an hour each way, plus time for their lunch break. This means with three shifts we were getting fifteen hours usage a day for a truck. The new system gets us twenty two hours on that same truck, far better utilization of the equipment”
This sort of optimization starts right at the top and the announcement that Mark Brennan, late of Sierra Resources – another South and Latin American mine optimizer – has shifted to an Executive Chairman’s role, simply reinforces Ascendant’s team of mine builders and operators.
The company’s press release of April 18, 2017 outlines the path forward. In that release Buncic is quoted as saying, “With a sustained focus on increases in mine throughput and with the investment in new equipment, we remain confident that we can achieve our production goal of greater than 2,200tpd at an all-in sustaining cost of lower than US$1.00 per ZnEq pound by year end. I am exceedingly pleased by the level of partnership we are experiencing at the mine with the union members and the local community as we re-establish El Mochito as a profitable business in Honduras.”
While Ascendant is optimizing the El Mochito mine it is also looking carefully at the geology of its property. “The resource is controlled by five large faults or dykes. There are two types of ore, with the higher grades being found in chimneys and the lower in flat lying mantos. The mine has been following the trend for decades,” said Buncic, “The resource needs more drilling and we currently have a planned acceleration of exploration expenditures over the course of the year of approximately US$2 million. .”
Buncic is confident. “We understand the geology,” said Buncic. “We think we can significantly expand the resource with much of that material from the higher-grade chimneys.”
Working in Honduras has been pleasant. “El Mochito is located in the town of Las Vegas and access to the mine takes approximate 2 hours via paved roads from San Pedro Sula’s international airport,” said Buncic. “We have great relationships with the mayor and with the federal government and we have lots of involvement with and support from the local community..”
Optimizing mine production into a rising zinc market looks like a winning strategy for Ascendant. And having a producing mine to service that market is an attractive opportunity for investors who want to increase their exposure to the base metals world.
At time of writing Ascendant was trading at $0.62 with 71.73 million shares outstanding for a market cap of $41.61 million.