CZN: A Developing Zn-Pb-Ag Producer

Transcription

1 CZN: A Developing Zn-Pb-Ag Producer June

2 This Annual Report contains forward-looking statements that are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and under Canadian securities laws that involve a number of risks and uncertainties. Such statements are based on the Canadian Zinc Corporation s (the Company, the Registrant, Canadian Zinc or CZN ) current expectations, estimates and projections about the industry, management s beliefs and certain assumptions made by it. We use words such as expect, anticipate, project, believe, plan, intend, seek, should, estimate, future and other similar expressions to identify forward-looking statements. The Company s actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Statements about the Company s planned/proposed Prairie Creek Mine operations, which includes future mine grades and recoveries; the Company s plans for further exploration at the Prairie Creek Mine and other exploration properties; future cost estimates pertaining to further development of the Prairie Creek Mine and items such as long-term environmental reclamation obligations; financings and the expected use of proceeds thereof; the completion of financings and other transactions; the outlook for future prices of zinc, lead and silver; the impact to the Company of future accounting standards and discussion of risks and uncertainties around the Company s business are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, the Company's actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. You should not place undue reliance on these forward-looking statements. Information relating to the magnitude or quality of mineral deposits is deemed to be forward-looking information. The reliability of such information is affected by, among other things, uncertainty involving geology of mineral deposits; uncertainty of estimates of their size or composition; uncertainty of projections relating to costs of production or estimates of market prices for the mineral; the possibility of delays in mining activities; changes in plans with respect to exploration, development projects or capital expenditures; and various other risks including those relating to health, safety and environmental matters. The Company cautions that the list of factors set forth above is not exhaustive. Some of the risks, uncertainties and other factors which negatively affect the reliability of forward-looking information are discussed in the Company's public filings with the Canadian securities regulatory authorities, including its most recent Annual Report, quarterly reports, material change reports and press releases, and with the United States Securities and Exchange Commission (the SEC ). In particular, your attention is directed to the risks detailed herein concerning some of the important risk factors that may affect its business, results of operations and financial conditions. You should carefully consider those risks, in addition to the other information in this Annual Report and in the Company's other filings and the various public disclosures before making any business or investment decisions involving the Company and its securities. The Company undertakes no obligation to revise or update any forward-looking statement, or any other information contained or referenced in this Annual Report to reflect future events and circumstances for any reason, except as required by law. In addition, any forecasts or guidance provided by the Company are based on the beliefs, estimates and opinions of the Company s management as at the date of this Annual Report and, accordingly, they involve a number of risks and uncertainties. Consequently, there can be no assurances that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Except as required by law, the Company undertakes no obligation to update such projections if management s beliefs, estimates or opinions, or other factors should change. 2

3 Near-Term Production Potential Prairie Creek Mine Project is fully permitted and located in miningfriendly Northwest Territories Substantial existing infrastructure built in the 1980s Over C$200M (current dollars) spent Marketability of concentrate confirmed by MOUs signed with Korea Zinc and Boliden Evaluating project financing alternatives One of the highest grade, undeveloped zinc projects P&P reserves of 7.6M tonnes at 23.55% Zn Eq. M&I resources of 8.7M tonnes at 25.81% Zn Eq. Inferred resources of 7.0M tonnes at 27.06% Zn Eq. Substantial exploration upside High grade mineralization expands an additional 1.8 km Base metal showings occur along 16 km of strike length Significant improvements in March 2016 Updated PFS 17 year mine life with excellent potential to extend mine life Average annual production of 86M lbs Zn, 82M lbs Pb and 1.7M oz Ag NSR C$417/tonne 1 compared to LOM average opex of C$230/tonne Pre-production capex of C$244M Average annual EBITDA of C$90M 1 After-tax NPV 8% of C$302M and IRR of 26% 1 High grade VMS projects in central Newfoundland ~500km 2 land package in a proven yet underexplored mining district Four deposits with NI resources established and 10 advanced exploration targets Agreement with Buchans Minerals to evaluate the viability of developing key deposits through a central milling facility Metallurgical studies are being largely funded by the Government of Newfoundland 1.Assumes long-term metal prices of US$1.00/lb Zn, US$1.00/lb Pb and US$19.00/oz Ag as well as an exchange rate of C$1.25:US$1.00 3

4 Capital Structure (C$) Analyst Coverage Ticker Basic Shares O/S 1 (FD Shares O/S) Current Price (June 2, 2016) 52-Week Trading Range Basic Market Cap (June 2, 2016) Cash & ST Investments 1 Debt TSX:CZN, OTCQB:CZICF 218 million (240 million) C$0.20 C$ C$0.29 C$43.6 million C$1.9 million None Dealer Date Target Price (C$) Canaccord (Eric Zaunscherb) April 2016 C$0.40 Dundee (Joseph Gallucci) April 2016 C$0.40 Paradigm (Jeff Woolley) April 2016 C$ At March 31, 2016 Last 12 Months Share Performance Share Pirce C$ $0.25 $0.20 $0.15 $0.10 $0.05 6,000 5,000 4,000 3,000 2,000 1,000 Volume (000's) - - Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun

5 Advanced project with significant existing mine site infrastructure valued at over C$200 million 870 Level Portal Thickener Tank in Mill Jumbo at 870 Level Ball Mill Flotation Cells in Mill Accommodation Trailers Polishing Pond 5

6 Mineral Zone Classification Tonnes Silver (g/t) Lead (%) Zinc (%) ZnEq 1 (%) PbEq 2 (%) Main Quartz Vein (MQV) Stockwork (STK) Stratabound (SMS) P&P Reserves 5,166, M&I Resources 5,540, Inferred Resources 5,269, P&P Reserves 1,472, M&I Resources 2,122, Inferred Resources 1,610, P&P Reserves 965, M&I Resources 1,042, Inferred Resources 170, P&P Reserves 7,603, Total M&I Resources 8,704, Inferred Resources 7,049, ZnEq% = (grade of Zn in %) + [(grade of lead in % * price of lead in $/lb * * recovery of lead in % * payable lead in %) + (grade of silver in g/t* (price of silver in US$/Troy oz/ ) * recovery of silver in % * payable silver in %)] / (price of zinc in US$/lb* * recovery of zinc in % * payable zinc in %) 2. PbEq% = (grade of Pb in %) + [(grade of zinc in % * price of zinc in $/lb * * recovery of zinc in % * payable zinc in %) + (grade of silver in g/t* (price of silver in US$/Troy oz/ ) * recovery of silver in % * payable silver in %)] / (price of lead in US$/lb* * recovery of lead in % * payable lead in %) 6

7 7

8 Increased Mineral Reserve tonnage by 46%, mine life extended by 55% to 17 years Robust, detailed 3D geological and mining model developed Comprehensive mine plan with improved grade & tonnage estimates Underground studies determined cost-effective mining methods Accurate capital and operating cost estimates Metallurgical studies optimized processing of concentrates Cost of major equipment packages, including leasing options, estimated with Tetra Tech in controlled bidding process Marketability of concentrate confirmed by MOUs signed with Korea Zinc and Boliden (mercury issue addressed) Operations based on proposed all-season road, replacing winter road Capital cost of C$244 million vs. C$193 million (2016 PFS includes allseason road) 8

9 Mine and Mill Parameters Total ore mined (million tonnes) 7.6 Milling rate (tpd) after DMS 955 Life of Mine Statistics Mining rate (tpd) 1,350 Life of Mine (Years) 17 Zinc concentrate (tonnes/annum) 60,000 Zinc concentrate grades 59.2% Zn, 136 g/t Ag Lead concentrate (tonnes/annum) 55,000 Lead concentrate grades 65.0% Pb, 7.4% Zn 824 g/t Ag Ore Grade Initial 10 Years Ore Grade LOM Recoveries Avg. Annual Metal Production Payability Zinc 10.0% 8.9% 83% 86M lbs 85% Lead 9.8% 8.3% 88% 82M lbs 95% Silver 154 g/t 128 g/t 87% 1.7M oz 81% Project Assumptions Base Case Zinc price US$1.00/lb Exchange Rate C$1.25:US$1.00 Lead price US$1.00/lb Discount Rate 8% Silver price Operating and Capital Cost US$19.00/oz Operating Costs LOM $/t Ore Mined Pre-Production Capital Costs C$M Mining Mine Development 34.5 Processing Processing Plant 19.2 Site Services Support Infrastructure and Site Completion 82.8 G&A All-Season Road 58.2 Transportation Owner s Cost and Contingency 48.9 Economic Results Total Total Pre-Production Capex LOM Sustaining Capex 70.4 Pre-tax Post-tax 8% (C$M) IRR 31.9% 26.1% Payback Period (years) 3 3 Average annual EBITDA (C$M) 90 9

10 Underground mine currently with 3 adits and 5km underground development Full production of approximately 485,000 tpa or 1,350 tpd Mining by mechanized long hole open stoping for Quartz Vein ore and mechanized drift-and-fill for Stratabound ore Potential to double mine life through upgrading inferred resources 1,350 tonne per day mining rate/17 year mine life

11 Typical processing: crush, grind, float to produce lead and zinc concentrates Milling rate, after DMS separation, 960 tonnes per day Mill facilities will have 1,500 tpd of crushing capacity, with an installed jaw crusher, short head cone crusher, ball mill, flotation cells, double-decked screen and a 2,000 tonne ore bin Innovative waste management process DMS plant at front-end of mill will remove ~27% of waste dilution Installation of paste backfill plant at back-end of mill with no surface tailings pond Utilizes recirculated underground water from the water storage pond 11

12 The Prairie Creek Mine will produce two types of high grade concentrates: a zinc sulphide concentrate and a blended lead sulphide and oxide concentrate Potential optimization opportunity by assessing the recoverability of the zinc oxide component of the ore, which is currently considered non-economic Average annual production of 60,000 tonnes of zinc concentrate and 55,000 tonnes of lead concentrate containing a combined 86 million lbs Zn, 82 million lbs Pb and 1.7 million oz Ag over a 17 year mine life 12

13 MOUs Confirm Marketability of Prairie Creek Concentrates CZN signs MOUs with Korea Zinc and Boliden for sale of zinc and lead concentrates, covering the first 5 years of production Korea Zinc MOU 20,000 to 30,000 metric tonnes of zinc sulphide concentrates 15,000 to 20,000 metric tonnes of lead sulphide concentrates 5,000 tonnes of lead oxide concentrates Boliden MOU 20,000 to 40,000 metric tonnes of zinc sulphide concentrates Secures markets for all of planned zinc production and approximately 50% of planned lead production for first five years of forecast operations Treatment charges to be set at annual benchmark treatment charges and scales as agreed between major smelters and major miners Payables, penalties to be negotiated annually, including agreed limits for mercury levels in the zinc concentrate, based on indicative terms included in each MOU 13

14 2012 PFS includes use of the access road only in the winter months Winter road permit has been issued Requires larger working capital (including large concentrate and supply inventories) and complex logistics management Revised transportation plan includes use of all-season road Concentrate to be trucked ~500 km from the mine site to the railhead at Fort Nelson Trans-loading facility at Fort Nelson Transported by rail to the port of Vancouver for shipment to smelters overseas All-season road permit application submitted to MVLWB and Parks Canada and the Environmental Assessment process is ongoing Environmental Assessment approval expected in Q Benefits of the All- Season Road Decreases required working capital inventories More timely delivery of product and consistent supply of materials Lowers logistical risks Smaller trucking fleet Allows alternative, lower cost energy sources such as LNG Transportation Costs (C$/tonne mined) Trucking C$34 Rail/Fort Nelson trans-load C$17 Ocean freight/ Vancouver trans-load C$14 Total C$65 14

15 Metal Prices Pre-tax Post-tax Zinc/Lead US$/lb Silver US$/oz Undiscounted C$M NPV 5% C$M NPV 8% C$M IRR % Discounted C$M NPV 5% C$M NPV 8% C$M IRR % , , , ,788 1, , ,123 1,349 1, , Foreign Exchange assumed to be $1.375 CAD:$1.00US on this line only 15

16 Fully permitted to conduct mining, milling and processing activities at the Prairie Creek Mine Permit/License Type Permit/License Identifier No. Permit/License Purpose Date Issued Issuing Agency Land Use Permit MV2012F0007 Road Operations (on crown land) 10-Jan-13 MVLWB Water License MV2012L Road Operations (on crown land) 10-Jan-13 MVLWB Land Use Permit MV2008D0014 Mine Operations 17-Jun-13 MVLWB Land Use Permit MV2008T0012 Liard Transfer Facility 17-Jun-13 MVLWB Land Use Permit Parks2012_L001 Road Operations (on NNPR land) 26-Aug-13 Parks Canada Water License Parks2012_W00l Road Operations (on NNPR land) 26-Aug-13 Parks Canada Water License MV2008L2-002 Mine Operations 24-Sep-13 MVLWB Water Licence Granted for Prairie Creek Mine Type A Water Licence issued by the Mackenzie Valley Land and Water Board ( MVLWB ) on July 8, 2013 Approved by the Minister of Aboriginal Affairs and Northern Development (Canada) in September 2013 Application for an all-season road submitted to the MVLWB and Parks Canada in 2014, now undergoing Environmental Assessment Proposed Water Storage Pond The proposed Prairie Creek Mine development is not likely to cause significant adverse impacts on the environment or to be a cause of significant public concern. 2011, The Environmental Review Board Report 16

17 November 2015 August 2012 August 2011 August 2011 June 2011 January 2011 Renewed 2008 and 2012 MOUs with Parks Canada regarding the development and operation of the Prairie Creek Mine and the management of the Nahanni National Park Reserve Collaboration and co-operation agreement related to public transportation infrastructure Government of Canada invested $4.2 million in the Silver Lining Training Program at Prairie Creek Socio-Economic Agreement with the Government of the NWT for the development of the Prairie Creek Mine Impact Benefit Agreement with the Liidlii Kue First Nation (Fort Simpson) Impact Benefit Agreement with the Nahanni Butte Dene Band 17

18 Excellent Potential for Resource and Mine Life Extension Current resource extends across 2.3 km strike length Past drill results have confirmed high grade mineralization expands an additional 1.8 km Base metal showings occur along the entire 16 km strike length of the property 18

19 Complete Environmental Assessment and permitting of the allseason road Optimization studies of mill circuit to increase throughput and recoveries Early completion of engineering and mine development programs to reduce start-up times Further metallurgical studies to reduce deleterious components and smelting penalties Additional hydrology studies to better design, cost water management facilities Project debt financing evaluation and negotiations 19

20 20

21 Acquired a very large land position in central Newfoundland, with several high potential exploration and development base metal projects Significant exploration upside in a proven yet underexplored mining district Approximately 500km 2 land package 10 advanced exploration targets, 4 deposits with NI resources established Tulks South Project Teck s Duck Pond Project CZN s South Tally Pond Project Newfoundland s geology is similar to eastern Australia, which currently hosts ~20 mines including some of the world s largest zinc mines such as the MMG Limited s Century Mine and Glencore Xstrata s Mt Isa and McArthur River mines Significant upside through a number of high grade consolidation opportunities in Central Newfoundland Potential for a large (Buchans-style) VMS deposit, or several satellite VMS deposits, to be processed through a central mill Government-funded research for central mill concept CZN and Buchans Minerals entered into an agreement to Newfoundland determine the viability of developing key deposits in central by utilizing a central milling facility The Research & Development Corporation of Newfoundland and Labrador is supporting the initiative by providing CZN funding of C$535,000 for the project through the GeoEXPLORE Industryled R & D Technology Development and Demonstration Program Bench scale metallurgical studies are being conducted on seven VMS deposits, three held by Buchans Minerals and four deposits owned by CZN (Lemarchant, Boomerang-Domino, Tulks East and Long Lake) 1. Completed the acquisition of Paragon Minerals Corporation in September Completed the acquisition of Messina Minerals Inc. in December

22 CZN is trading at a substantial discount to its peer group 46% discount relative to Trevali (CZN s closest producing comparable) 19% discount relative to primarily zinc exploration and development companies 67% discount relative to select companies with silver-zinc-lead projects in the Americas 47% discount to companies with permitted/near-permitted polymetallic projects Consensus Research P/NAV Estimates 0.94x 0.73x 0.57x 0.58x 0.31x 0.38x CZN Trevali Zinc Exploration and Development 1 Companies Exploration and Development Companies with Silver-Zinc-Lead 2 Projects Developers of Permitted Polymetallic Projects Polymetallic Producers with Significant Zinc Production Zinc exploration and development companies average includes Arizona Mininc Inc., Foran Mining Corp., Heron Resources Limited, Ironbark Zinc Limited, Rathdowney Resources Ltd., Red River Resources Ltd. and Zazu Metals Corporation 2. Select exploration and development companies with silver-zinc-lead projects average includes Alexco Resources Corporation, Bear Creek Mining Corporation and MAG Silver Corp. 3. Developers of permitted/near - permitted polymetallic projects average includes Alexco Resources Corporation, Bear Creek Mining Corporation, Ironbark Zinc Limited, Polymet Mining Corp., Red River Resources Ltd., and Seabridge Gold, Inc. 4. Polymetallic producers with significant zinc production companies average includes Americas Silver Corporation, Aurelia Metals Limited, Grffin Mining Limited, Nyrstar NV, Sierra Metals Inc. and Trevali Mining Corporation Source: NAVPS estimates are based on consensus research Note: share price data used in this analysis is as of market close on June 2,

23 Patricia Mohr, Scotiabank Commodity Price Index, March 2016 Much stronger zinc prices over the balance of this decade (US$1.25 in 2017, US$1.55 in 2018 and US$1.70 in 2019) should revitalize junior mining projects in Canada (e.g. Prairie [Creek] Zinc). AME Group zinc industry feature, February 2016 As concentrate shortages loom due to mine closures, further material is set to be removed from the concentrate market as operations look to shelve expansion plans These cuts are expected to put pressure on a zinc concentrate market that is already in significant deficit. CRU, PDAC Presentation, March 2016 Closures, contractions and cutbacks occurring outside of China are expected to lead to a loss in zinc production of approximately 1.6 million tonnes between 2015 and Additional closures are also expected zinc production from Chinese mines is seen as being especially vulnerable. Various company reports, January 2016 Closures and reductions announced since 2013 have removed or potentially will remove approximately 4.9 billion pounds of annual zinc production zinc, representing approximately 15% of the global supply and well above the most optimistic forecasts of foreseeable zinc mine additions. Wood Mackenzie PDAC presentation, March 2016 We are forecasting an increase in global zinc refined metal demand in 2016 of 3.6% to 14.6 million tonnes, exceeding current estimates for global supply, keeping the refined market in deficit and further reducing stockpiles of zinc. International Lead and Zinc Study Groups press release, February 2016 Global demand for refined lead metal is forecast to increase by 2.6% to million tonnes in 2016 due to increased usage in automotive and industrial battery sectors. 23

24 More than 850,000 tonnes of zinc are expected to come off line in 2016 Mine closures resulting from ore depletion and lower zinc prices have yet to significantly impact zinc supply The zinc market, which posted a small deficit in 2015, will see deeper deficits in the next three years, resulting in lower warehouse inventories Growth in demand, led by China at approximately 3% p.a., expected to continue to at least until 2020 By 2020, mine closures and insufficient mine production alongside steady demand growth are expected to result in the annual refined zinc deficit to reach over 2 million tonnes Anticipated rise in zinc price has been delayed but is still expected 24

25 Prairie Creek Mine is one of the highest grade, undeveloped zinc lead silver deposits in the world Fully permitted, construction-ready project with >C$200 million in existing infrastructure CZN is one of the few zinc and lead developers with near-term production potential undervalued relative to peers Significant exploration upside from high grade VMS projects in central Newfoundland Improving zinc market fundamentals 25

26 For further information please contact: John F. Kearney Chairman Tel: (416) Fax: (416) Alan B. Taylor COO & VP Exploration Tel: Fax: (604) Steve Dawson VP Corporate Development Tel: (416) Fax: (416) Suite 1710, 650 West Georgia Street, Box 11644, Vancouver, BC V6B 4N9 12 th Floor, 220 Bay Street, Toronto, ON M5J 2W4 26