Australian exploration company, Pacifico Minerals Limited (ASX: PMY) intends to gain from the prevailing Lead market opportunity via the development of its 75% owned Sorby Hills Lead Silver Zinc Project. Recently, via a metallurgical testwork program, the company confirmed the potential for the Project to produce high-quality Lead concentrate, which is highly encouraging news from an exploration perspective. Considering the forecasted growth in the Lead demand, Sorby Hills is proving to be a high-value asset for the company and its shareholders.
Lead Market Dynamics: The overall market for Lead is larger as compared to nickel. Generally, primary refined Lead is sourced from mines as a concentrate while the secondary refined Lead is produced through recycling and processing Lead scrap. It has been observed that 50% to 60% of Lead comes from recycling, which is why the dynamics of the need for primary mine supply growth are equally as important as end-use demand growth for the metal itself.
Currently, a humongous amount of Lead is consumed by the automotive (AV) batteries. As stated by the company, with growth in the car ownership numbers in China, it is expected that automotive demand will complement Lead battery production across 2019 (Source: Wood Mackenzie January 2019 report). Generally, electric vehicles require a separate energy storage system for powering the lithium-ion propulsion batteries. Lead, being significantly cheaper per unit of storage, remains the core technology element for this application.
In addition, the rollout of 5G network supports demand for Lead in 2019, as base stations are also using Lead batteries.
The demand for Lead batteries is also underpinned by the Start-Stop automotive technology, which is becoming more common these days. As per It is expected that these vehicles will, therefore, contain 25% more Lead per battery (Source: The Assay Group Mining Magazine). It is forecasted that globally, approximately 50% of all new vehicles will come with engine start-stop technology by 2020.
It is observed that the use of Lead for energy storage systems is on the rising trend in 2019. Australia alone is expected to add over 70,000 home batteries in 2019 due to government subsidies and incentives. (Source: The Assay Group Mining Magazine).
As per the International Lead and Zinc Study Group, the global Lead demand in 2019 is forecasted to rise by 1.2% to 11.87 million tonnes on the back of increased usage in India, Japan and the Republic of Korea.
As per the global energy and research consultancy, Wood Mackenzie, the automotive original equipment (OE) and replacement batteries will continue to be the biggest consumers of Lead. Furthermore, the usage of industrial batteries is expected to increase from 22% in 2018 of total demand to 26% in 2040, underpinned by increasing use of batteries in energy storage systems, particularly for renewable power generation (refer below figure).
Sorby Hills Project Overview: Pacifico’s Sorby Hills Project is a near term Lead-silver-zinc development asset with outstanding project economics and a global resource of 29.98 million tonnes of 4.7% Pb equivalent. The recently conducted pre-feasibility study has estimated a CapEx of $95.4 million to develop the mine, a pre-tax NPV8 of $243 million, and average cashflow $60 million with the capital payback of 16 months.
The established infrastructure and permitting of the project allow for fast-tracked production.
Recent Developments: During the 2019 June quarter, the company made substantial progress in the development of the project. During the quarter, the company unveiled assay results for the final 12 holes of Phase I drilling campaign, which tested the B, C, DE, F and I deposits at the Sorby Hills Project.
As per the company, these latest results will help to convert Inferred Resources to Indicated Resources, particularly in the F deposit and will be included in the next MRE to be completed once Phase II drilling results have been received. Recently released highly positive results from the company’s Phase I metallurgical testwork program also confirmed the potential for the project to produce a high-quality Lead concentrate containing appreciable silver credits.
In May 2019, the company commenced the Phase II infill and extension drilling program to combine an updated MRE with the recently improved metallurgical testwork results and mining studies with anticipation of enhancing the economics and improving the confidence of an optimised PFS, which is scheduled for completion in Q4 2019.
During the quarter, the company finalised a placement to sophisticated and professional investors to raise $4 million by issuing ~ 666 million shares at $0.006 per share.
Along with the development of the Sorby Hills Project, the company is also exploring opportunities to realise value from existing non-core exploration assets in Australia and Colombia through the potential sale and Joint Venture agreements.
June Quarter Cashflow: In 2019 June quarter, the company spent $898k on exploration and evaluation activities, taking the total year-to-date cash expenditure on these activities to $2,110k. Further, the company spent $90k on staff costs and $200k on administration and corporate costs. The net cash used in operating activities during the June quarter was around $1.18 million.
During the quarter, the company spent $17k on purchase of property, plant and equipment and $2,264k on tenements (Sorby deposit). The net cash used in investing activities was around $2,281k. The company witnessed an inflow of $3,803k from the financing activities over the June quarter.
As of 30th June 2019, the company had cash and cash equivalents of $1.96 million.
For the September quarter, the company expects to incur cash expenditure of around $1.03 million on exploration and evaluation activities. The total estimated cash outflow for the September quarter is around $1.35 million.
Stock Performance: In the past six months, PMY’s stock has shot up by 100% as on 7th August 2019. On 8th August 2019, the company’s stock is trading at a price of $0.009 (2:56 PM AEST) with a market capitalisation of circa $20.82 million.
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