WHIreland Update26 Jul 2022 12:25
The Toral zinc-lead project in Spain; underappreciated on all metrics Europa Metals (Europa) is advancing the Toral zinc-lead-silver project in NW Spain. Toral is one of the largest undeveloped zinc+lead resources in Europe and has high grades compared with many of its peers. The deposit also benefits from its location in a modern democracy with access to good levels of infrastructure (road, rail and power). The location in León in Spain is also an advantage; it is a mining-friendly jurisdiction, which permits mining and has to feed a large industrial complex, including one of the world’s largest zinc smelters at San Juan de Nieva. Europa has advanced the project significantly in the past few years and is designing its process flow sheet to incorporate the optionality of XRT sorting to decrease mass by half into the recovery section of the plant. This has positive capital, operating and resource implications, including the potential to add currently subeconomic resources into a mining plan, bring forward production and extend mine life. Europa appears severely undervalued against its development peers and against our conservative DCF analysis. We initiate with a fair value of 11.7p/sh but see multiple upsides against this as Europa continues to derisk the project.
The Toral deposit is hosted on a regional scale contact between a thick limestone sequence and an overlying phyllite/slate. Mineralisation remains, open at depth and along strike. Europa has grown Toral by 40% to a 20Mt JORC (2012) indicated and inferred resource with an estimated zinc equivalent grade of 6.3% (ZnEq – zinc + lead + silver).
A preliminary economic assessment (PEA) shows significant returns: Financial results of our DCF show an NPV10% of $62m and an IRR of 19%, using WHI estimates after expected inflation of capex to $90m (EUZe $79m) and opex of $70/t ($58/t) over a 12-year life of mine. The Toral plan is simple with a bulk mining underground method before differential flotation to produce two separate concentrates: zinc and a lead-silver concentrate. The polymetallic nature of Toral acts as a natural hedge and the revenue mix protects the Toral economics, in our view.
We see clear upsides: Europa has a clear strategy to further derisk technical aspects of Toral, including growing and upgrading the MRE, updating geotechnical studies, and completing advanced economic studies, as well as fully incorporating XRT sorting into the process route, which could be a game changer for the project.
Robust metal price environment: We expect zinc to remain a strong market over the course of the decade, as high prices are required to incentivise the new production necessary to fulfil expected demand – we use a long-term zinc price of $1.25/lb (compared with $1.42/lb currently). We also remain bullish for lead and silver over the course of the expected Toral mine life; we use long-term prices for lead and silver of $1.00/lb and $25/oz ($0.90/lb and $19.2/oz) in our analysis..
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