Callinex Mines President issues year-end letter to shareholders

"Dear Shareholders,

I want to thank you on behalf of our team for your support of the company throughout the past year. In 2018, Callinex aggressively advanced its zinc-rich assets in the Bathurst Mining District [New Brunswick, Canada]. The milestones achieved were highlighted by an updated resource estimate that confirmed a major expansion of the Nash Creek Deposit [New Brunswick] and a maiden Preliminary Economic Assessment (PEA) that outlined attractive economics and opportunities to further enhance the potential economic benefits.

Positive results from the company’s exploration activities since mid-2017 contributed to a substantial increase in the size of the Nash Creek Deposit that was announced in April. The indicated zinc equivalent resource increased to 963 million pounds, a growth of 74% since the project was acquired in 2016. Additionally, the inferred zinc equivalent resource increased by 385%, to 407 million pounds. The rapid expansion of the deposit highlights the exploration potential of the area based on limited historic drilling.

The most significant milestone achieved over the past year was the maiden PEA that was announced in May. The PEA outlined a high-margin, open-pit mine plan that generates a healthy pre-tax internal rate of return of 34.1% and Net Present Value at an 8% discount rate of $230 million based on a zinc price of US$1.25.

The key to the exploration success that led to the major expansion at the Nash Creek Deposit was from utilising a 2011 Induced Polarization (IP) survey for drill targeting. This led the company to commence a district-scale IP survey in September that will cover 17 km along trend south of the Nash Creek Deposit.

Since the start of the ongoing IP survey, two holes were drilled at the end of the 2018 drilling campaign to test an initial target. Results from these drill holes confirmed that IP is the most effective method to directly target near-surface mineralisation. This was a critical exploration success as the ability of the IP survey to accurately vector towards increased sulphide mineralisation, which generally correlates with higher grade mineralisation at the Nash Creek Deposit, is very encouraging to apply over the 150 km2 district-scale land package. This approach will allow for a cost-effective 2019 exploration programme that can test the potential for additional deposits over a much larger area.

The past year was met with significant volatility in the zinc market. Zinc prices started off the year with a great deal of optimism at US$1.53 per pound and quickly rallied to US$1.64 in February. That optimism for prices in the short term was doused by the start of the ongoing trade war between the US and China and the potential impact it could have on future global growth. This scenario triggered the zinc price to commence a significant decline before bottoming out around US$1.04 by September.

It is our view that the zinc market has been significantly oversold based upon pessimism over potential global growth concerns, which we anticipate will be resolved as the US and China negotiate an end to the ongoing trade disputes. It is anticipated that an increase in global demand will continue to play out developed and emerging economies expand their infrastructure programmes. Recently, steel has been thrusted in the spotlight with the US government shutdown over the debate for construction of a wall along the southern border with Mexico. That discussion, which is turning towards a wall constructed of steel, highlights the critical role zinc plays in the global economy. The majority of all zinc consumed is related to the galvanisation of steel, which is a major component of global infrastructure projects.

Despite the dramatic pullback in prices the market has not seen any significant growth in inventories, in fact today LME inventories remain near a decade low. As of mid-December LME inventories were at 122 000 t, down from 180 000 t in January 2018 when prices reached $1.60 per pound and now make up less than a week’s supply of global demand. This critically low inventory level is comparable to 2006 when the zinc price exceeded $2.00 per pound.

Moving forward we are focusing near term efforts on generating compelling exploration targets that can, if successful, cause a material impact to the company’s valuation. We are eager to complete and receive results from the ongoing district-scale IP survey at the Nash Creek Project. The maiden PEA completed on the project highlighted the opportunity to further improve economics by sequencing additional higher grade and/or near surface mineralisation early in the mine plan. We believe that IP is the best exploration tool to discover additional mineralisation at the Nash Creek Project based on the success we’ve had to date.

Furthermore, Callinex also plans to complete an IP survey over key stratigraphy at the company’s Pine Bay Project located in the Flin Flon Mining District of Manitoba. The goal of the survey is to model lowly conductive pyrite that has the potential to host high-grade zinc, copper, gold and silver mineralisation. Previous exploration discovered multiple pyrite-rich massive sulphide intersections that are very poorly conductive and as a result traditional electromagnetics has been an ineffective vectoring tool in this geological environment. The discovery of an economic deposit is critical for the future for the community of Flin Flon, where Hudbay’s 777 mine will be shut down in three years and no new discovery has been made to fill the impending void.

The company plans to drill test the most compelling targets generated from ongoing exploration programmes in New Brunswick and Manitoba this year.

Our team is very excited about the opportunities to advance our project portfolio through exploration underpinned by strong fundamentals for zinc as well as other base and precious metals in 2019.

Sincerely,

“Max Porterfield”
President & CEO"

Read the article online at: https://www.globalminingreview.com/mining/23012019/callinex-mines-president-issues-year-end-letter-to-shareholders/