Fireweed Zinc (TSXV: FWZ) CEO Brandon Macdonald travelled to China three times last year, twice to Japan, and also talked with Korean smelters about the company’s Macmillan Pass project in the Yukon — the largest undeveloped zinc and lead resource in the world held by a junior Canadian company.
“The reception we’ve had with the smelters has been very positive,” Macdonald tells a group of analysts and investors on a recent tour of the project. “One of the strengths of this project is the high-grade, clean concentrate.”
The geologist, who has an MBA from the University of Oxford and also spent years working on structured financings and risk management in London at Macquarie Bank, adds that the long-term supply picture for zinc “remains bleak.”
“Nobody exactly understands how the long-term is going to play out, because there’s just not enough scalable projects,” he says. “And then the big four-million-tonne elephant in the room is, can China keep producing four million tonnes of zinc a year? There isn’t a single mine in China that’s anywhere near as big as this.”
The Macmillan Pass project — whose Tom and Jason deposits contain a combined 11.2 million indicated tonnes grading 9.6% zinc-equivalent (6.59% zinc, 2.48% lead and 21.33 grams silver per tonne), and another 39.5 million inferred tonnes at 10% zinc-equivalent (5.84% zinc, 3.14% lead and 38.15 grams silver) — is positioned well as a result, he says.
“The next big crunch comes in 2023–2024, which is about perfect timing for this project.”
A preliminary economic assessment (PEA) of the project’s Tom and Jason deposits released in May 2018 delivered an after-tax net present value of $448 million and a 24% internal rate of return.
The early-stage study outlines an 18-year mine life, at least three as an open-pit operation. Starter pits on the Tom West and Jason Main zones lower upfront capital, and the initial capex total of $404 million could be paid back, after-tax, in four years.
Over the mine life, an estimated 32.7 million tonnes of mineralization would be mined. At an average processing rate of 4,900 tonnes per day, the project would produce a yearly average of 85,000 tonnes zinc, 48,000 tonnes lead and 2 million oz. silver.
The base case in the maiden PEA employs a zinc price of US$1.21 per lb., a lead price of US98¢ per lb. and a silver price of US$16.80 per ounce. Altogether the Tom and Jason deposits contain 1.63 billion lb. zinc, 0.61 billion lb. lead and 7.69 million oz. silver in the indicated category, and another 5.08 billion lb. zinc, 2.73 billion lb. lead and 48.41 million oz. silver in the inferred category.
“This is an imminently developable project with these numbers,” Macdonald says, “but what you should pick up from the drilling we did last year, and what’s happening this year, in terms of blue sky, is that we’re not nearly done with this project and what it’s capable of … we think this is going to get a lot better before you stick a pin in it and start developing it.”
For a start, it’s the first time in history that the entire district has been assembled under one company, and most of the vast land package has been little explored using modern techniques.
In early 2018, Fireweed exercised its option and became 100% owner of the Tom and Jason claims and associated deposits and assets, and consolidated the Macmillan Pass district with purchase and options on several blocks of adjacent claims, more than doubling its land position to 544 square kilometres.
In November, it acquired the Nidd property on the western extension of the Macmillan Pass project from Teck Metals, a subsidiary of Teck Resources (TSX: TECK.B; NYSE: TECK). Historic drilling in Nidd’s Boundary Zone included intercepts of 224 metres grading 2.5% zinc and 0.3% lead, including 5 metres of 16.4% zinc.
With the Nidd acquisition, Fireweed now owns all four of the known large zinc mineralized systems in the region — Tom, Jason, the Boundary zone and the End zone — as well as other zinc exploration targets. Nidd covers the western extension of the so-called “Fertile Corridor,” which traces critical stratigraphic rock units, structural features and exploration targets from east of the Tom deposit to west of the Boundary zone over at least 25 kilometres.
This year the company plans 2,000 metres of core drilling and 1,000 metres of reverse-circulation drilling, which will include step-out targets at Tom North (not included in the 2018 resource update), Tom East (one of the highest-grade zones on the property), Jason North and the End zone.
The End zone hosts zinc-lead-silver mineralization that has been drilled but not yet classified as mineral resources. Drilling last year intersected high-grade zones, including 4.78% zinc, 10.17% lead and 87 grams silver per tonne over 11 metres.
The 2019 drill program will also attack greenfield targets that Fireweed has generated over the last two years — most of which are in areas where overburden conceals the bedrock — and have never been drilled. The targets are spread across the company’s property, but the emphasis will be on the Fertile Corridor.
The corridor is a belt of critical host geology that straddles a major syn-sedimentary structure, the Hess fault zone, and is an area Fireweed says is prospective for shale-hosted, zinc-lead-silver mineralization.
“There’s so much exploration potential, it’s crazy,” John Robins, Fireweed Zinc’s executive chairman, says during the one-and-a-half hour flight on a Cessna Caravan from Whitehorse to the project, about 16 km from Yukon’s border with the Northwest Territories.
Macmillan Pass, in southeastern Yukon, is also accessible via the North Canol Road from Ross River, off the Robert Campbell Highway. The company includes $105 million in its PEA as total capex required to upgrade the Canol Road, but Macdonald says there are opportunities to explore a partnership with the territorial and federal government to alleviate part or all of that cost. In 2016, Prime Minister Justin Trudeau and Yukon Premier Sandy Silver committed $360 million for infrastructure to access mineral-rich areas under the Gateway project.
“We include the road as a burden on our shoulders for our PEA,” Macdonald says, “which should give you a solid indication of how we approach it, and how we felt it would be disingenuous to be anything other than conservative in a setting like this, and why we think there is so much room for improvement [and optimization] here.”
“A lot of companies, including our neighbours at Mactung, when they did their feasibility study, not even a PEA, just left out the road,” he adds. “They just assumed that it would magically manifest in a condition that was suitable for them.”
Macdonald notes that Macmillan Pass would be a cost-competitive mine, thanks to its high-grade material, which will be moved from site to a smelter using the port of Skagway in Alaska, at $212 per wet metric tonne of concentrate. “It is not trivial, but it’s not perhaps as eye-watering as people thought,” he says. “And the nice thing about that is it is a reasonably predictable expense. It’s mostly driven by labour and fleet, and a little bit of fuel, so it’s something that won’t change a lot year to year.”
Macdonald describes the initial concentrate tests as “very appealing,” with low iron, and a little bit of mercury to manage, but other than that, a high-grade concentrate that “will be highly in demand.”
Met test results released before the PEA show a global composite zinc concentrate grading 58% zinc at 89% recoveries and a global lead concentrate containing 61% lead at 75% recoveries. Iron levels were 1.5%, with mercury at 155 ppm and silica at 4%.
“As part of our pre-PEA, when we released this metallurgy, we included in the appendix the full break-down of penalty elements from the assay results of the produced concentrate, which I don’t think you would see a lot of juniors do,” he says. “A lot tend to be evasive about lifting their kilts and showing what their con looks like. We felt it was the right thing to do. That’s the first question that a Korea Zinc, or a Sumitomo, or a Nonferrous Metals asks me, is: ‘OK, fine, so it’s 58% zinc. But what else?’”
Fireweed closed on the project in 2017, acquiring it from Hudbay Minerals (TSX: HBM; NYSE: HBM) for $1 million and 15% of the company’s shares. (Its 15% stake was diluted to 10%, with subsequent financings.) Hudbay discovered the Tom deposit in 1952, and by the time Fireweed acquired the project, 70,000 metres of drilling had already been completed. By Fireweed’s calculations, the replacement cost of this work amounts to somewhere between $100 million and $125 million in 2017 dollars.
“It shows you the absurdity of the current market conditions,” Macdonald says. “It is a very viable project, and I think it’s going to get built, and yet we’re trading for one-fifth the cost of getting this far.”
Robins, whose career successes include founding Kaminak Gold and its discovery of the Yukon’s Coffee deposits, describes the Macmillan Pass acquisition as “the deal of the century,” as far as the Yukon is concerned. Hudbay held on to it for years, he says, “and then just basically sold it for a song … these are how the greatest opportunities present themselves.”
“It’s got high-grade, and you need high-grade up here,” he says, but “even if you didn’t discover one more pound of zinc, you’ve got a viable project … because we’ve been able to galvanize the entire district, the idea that you could double the 50 million tonnes we have right now I think is completely a realistic target.”
Robins and his team also note that new exploration techniques, like passive seismic, will be a powerful tool at Macmillan Pass, where you have massive density differences. “Gravity has been around for a long time, but the problem always was that you can’t do gravity in mountainous terrain,” Robins says. “So what’s really cool about this is that gravity is really a game-changer now because of passive seismic, the ability to have super-detailed digital elevation models.”
“Even if, in 1991 — when Cominco was last exploring here — they had the knowledge to integrate passive seismic and the terrain correction methodologies we have now, they would not have had the computational power to do the terrain correction that we do now,” Macdonald adds.
The company kicked off its mid-2019 campaign in late June with core drilling on Tom North, which has been traced in sparse historic drill holes and trenches over a strike length of 600 metres, and only to shallow depths of 50 metres. Fireweed plans to drill the continuation of Tom North to depth to test its potential for mineralization amenable to open-pit mining, and test for thicker mineralization similar to the adjacent Tom West Zone. The company says Tom North could be an extension of Tom West, separated by a fault.
Six shallow holes drilled at Tom North from 1951–1952 and one hole in 1978 returned assays up to 5.05% zinc and 1.80% lead over 20 metres. But the company points out that its own drilling elsewhere at Tom has shown that many early historic results under-reported grades due to poor core recoveries.
“Tom North was drilled in 1952 using a very, very small-diameter core,” explains Jack Milton, Fireweed Zinc’s chief geologist. “And a lot of that stuff had really, really poor recovery, and we saw there was an opportunity there. For example, one hole was 15 metres of 2.7% zinc, and 5 metres of that was zero recovery, and some of the core is very soft. It washes away very easily in the drilling. So there’s an opportunity for us to go back and twin some of those holes and recover much more of the mineralized zone.”
Another step-out core drill target is the Tom East expansion target. Last year, drilling extended the zone to depth, with the deepest hole intersecting 16 metres grading 21.14% zinc, 13.55% lead and 243 grams silver. The zone is open for expansion.
RC drilling will focus on Target R and Jason North. At Target R, 2.5 km north of the mineral resource at Tom West, the drill will test a coincident gravity-magnetic and soil anomaly the company discovered last year. Jason North — an untested drill target north of the Jason Main deposit — is a coincident geological-geochemical-geophysical target.
In addition, gravity surveying, which found a number of targets in 2018, will continue along the Fertile Corridor and extend west from the 2018 survey area. The company is also undertaking LIDAR, geological mapping, sampling and prospecting to further its understanding of the geological controls on the mineralization, and delineate prospective areas on the property.
One area that appears intriguing is a 2.5 km long, lead-in-soil anomaly in the northern part of the property called Target G, which was identified last year after compiling historic data and fieldwork. The area is considered highly prospective because it is next to the MacMillan fault structure, and hosts bedded barite showings that can trap zinc-, lead- and silver-bearing fluids. A grab sample from loose surface rocks assayed 14.39% lead, 4.42% zinc and 312 grams silver. This year, Fireweed plans surface mapping and sampling over the length of the anomaly, followed by drilling the most prospective sections.
“We’re not going to get around to anywhere near drilling all the targets that we’ve already generated this year, and we’re still generating more data this year to do an additional gravity, additional mapping and prospecting,” Milton says. “We’ve got plenty of really juicy-looking targets that we would like to drill.”
There’s also low-hanging fruit for expanding Jason, the company says, where the syncline remains untested at depth, and connecting the two sides of Jason could yield more resource tonnage. “Jason Main was the first pit they discovered at Jason,” Macdonald says. “Once they found Jason South, they stopped drilling Jason Main. By the time they realized Jason South had two lenses, they never went back to Jason Main to chase to see if they actually missed a lens there. And when you look at the drill holes through Jason Main, none of them continued very far. They kind of got through the end of the zone and were like, ‘We’re done here’ … so it’s super intriguing. Jason Main is 10 million tonnes, and it would be great to add another Jason Main right next to it.”
Milton notes that the company is using new ideas to explore the project. The Tom deposit, for example, is where the term SedEx deposit was coined in the 1980s, he says, but it is no longer referred to as such. “There have been some developments in the model for how we think these deposits formed, and they may not actually be exhalative deposits,” he says.
“The classic SedEx model in the Selwyn basin is that you have these syn-sedimentary faults in these deep shale basins, and mineralizing fluids come up the faults and interact with very reduced seawater that contains very small amounts of sulphide, and you precipitate metals in layers on the seafloor. The new thinking is that these deposits form in the subsurface by the metals coming up the fault and reacting with barite to form sulphides. There has been no systematic exploration since the early 1990s, until we started exploration again in 2017. So we are using some of these new ideas to drive the exploration, and this opens up huge parts of our land package to a new wave of exploration.”
Fireweed’s $3.4-million exploration and resource expansion program this year (one drill that will be flown from target to target) will be funded from a $5-million private placement in February, which saw Teck Resources increase its stake in the junior to 9.9%, and Resource Capital Funds, the company’s largest shareholder, maintain its 13% interest.
Last year, drill costs ran at $700 per metre, but this year Macdonald says they’ll likely come in at closer to $500 per metre.
In addition to its size and exploration potential, Fireweed benefits from a management team with deep roots in the Yukon. Robins has spent decades in the territory, and his successes there include the 2016 sale of Kaminak’s Coffee deposit — 130 km south of Dawson City — to Goldcorp in a deal valued at $520 million.
For his part, Macdonald has a history of mining exploration work in the Yukon, including zinc projects, and originally hails from Ross River, 200 km from the Macmillan Pass project.
“Brandon’s father is a family friend of the chief’s,” Robin says, referring to the local First Nations. “Establishing social licence is absolutely critical … if you get off on the wrong foot and alienate the First Nations, you’re done.”
The Tom and Jason deposits are situated in the Hess Mountain region of the Selwyn Mountains, and within an area of territorial claim by the Kaska First Nations that has been withdrawn from staking while land claims are being settled, according to a January 2018 technical report. “The Kaska have not reached a land-claim settlement with the Yukon government,” the report states, although “the current staking moratorium does not prevent exploration or development work to be carried out on existing claims.”
“People will be exploring for decades to come in the district,” Robins says. “Now that the land position is finally consolidated, there is so much exploration potential, it’s like, where do you focus on? Obviously, the best reward is to expand on existing deposits that are there, finding more.”
Robins also notes that the $404 million in initial capex is “not that high,” compared to some of the other base metal projects in the Yukon. “The capital is reasonable, and just to put it in perspective, when you compare the economics of this to something like Coffee — which we were involved in — this thing will ultimately blow the doors off Coffee, in terms of a project that’s going to bring economic development to the territory.”
(This article first appeared in the July 24, 2019 edition of The Northern Miner)
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