Source: The Critical Investor for Streetwise Reports 12/09/2017
The Critical Investor provides an update on this zinc explorer’s latest drill results.
Ayawilca project; drilling location
After several attempts in vain, it seems like Tinka Resources Ltd. (TK:TSX.V; TLD:FSE; TKRFF:OTCPK) has finally found what it was looking for: mineralization on the highly anticipated target Zone 3. Drilling in Zone 3 isn’t easy as the terrain in this area is steep, and the drilling itself took longer than usual, causing earlier hole 091 to be abandoned after no less than six weeks of drilling it. The rig was also badly needed for resource drilling at the time, so it was of better use elsewhere (South Ayawilca). Notwithstanding this, CEO Graham Carman didn’t forget the significant green alteration appearing at the very end of the drill core of another abandoned drill hole in Zone 3, hole 081, caused by chlorite, which is a strong indicator mineral for zinc. He needed a definitive answer from Zone 3, and deepened hole 091 another 145 meters. This time he and his crew had more luck and finally hit economic grade mineralization. What this could mean for the resource will be explained in this update.
All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in U.S. dollars, unless stated otherwise.
Please note: the views, opinions, estimates or forecasts regarding Tinka’s performance are those of the author alone and do not represent opinions, forecasts or predictions of Tinka or Tinka’s management. Tinka has not in any way endorsed the information, conclusions or recommendations provided by the author.
Things are getting interesting again for Tinka on the exploration front, after the company outlined the resource on South Ayawilca and updated the total Ayawilca resource estimate to 42.7Mt @7.3% ZnEq on a US$55/t cut-off (about 3.6% ZnEq cut-off grade). As Zone 3 is a large target, and mineralization is abundantly found at Ayawilca, I wasn’t too concerned about the first misses. The current resource already indicates a pretty economic and sizable project, but investors (and management) were hoping for more, which might have been one of the reasons the share price didn’t hold on to higher levels as much as anticipated after the resource update on November 8:
500m
To get the picture, the locations of the drill holes can be seen here. Note the earlier mentioned A17-081 to the far right, and also A17-073, which didn’t return significant results, indicating a potential upper boundary for mineralization:
Please note the earlier holes that I labelled A, B and C. C is A14-031 with economic grade zinc mineralization, as shown in the figure, and hole A14-028, containing 63m @0.26%tin and 0.2% copper. Hole B (A15-050) had 8m @2% zinc. Hole A, which is hole A14-24, intercepted 40 m @4.1% zinc with some silver/indium and 5m @0.9% tin and 0.4% copper at the edge of East Ayawilca from 320 m depth. So clearly, mineralization is wide open to the east, and may even connect with hole A14-031 and A17-091A on both sides of the fault (dotted line F trending SE-NW), but time will tell. This connection isn’t too far-fetched, as both holes drilled into limestone, which is the principal carrier of mineralization (limestone in blue):
This is actually a pre-drilling cross section, but the basic concept behind it still seems to hold up very well. The upwards folded limestone structure is called a “syncline” in geology. As the thickness of the limestone at Zone 3 is at least double the thickness of other mineralized zones at Ayawilca, the massive sulphides in this thicker limestone could be more extensive as well. The airborne magnetics show strong anomalies as well at Zone 3 (see map further below).
Because of the copper and tin mineralization at Ayawilca as well as the zinc, the porphyry intrusive (red zone in the cross section) about 3km to the east that outcrops at Los Pinos could be the source of the mineralization overall. The zinc mantos (horizontal mineralized envelopes) themselves (which have to be fed by faults as well of course, probably coming through the basement rock below) could have been the feeders for the thicker “chimney” style mineralization at West and South Ayawilca. The thick chimney mineralization could have been caused by the manto mineralization being trapped near fault structures, and had nowhere to go but up.
Another subject is that zinc and copper often appear on the same location, with zinc settling on the outer edges of copper mineralization. This could be the case here. When I asked Carman about plans/drill permits to look into the intrusive to find this possible main feeder it appeared this was a bit too farfetched for now, as he indicated the intrusive itself was probably not a target for now. The magnetics do support ongoing sulphides to the east so who knows:
It is also interesting that the highest magnetic intensity is not always being located at the center of mineralization, like at South and West. This seems to be consistent with the current mineralization being positioned around the edges of the strongest magnetics. Therefore, magnetics aren’t a direct indicator of mineralization.
What could these new results imply for Tinka? The area east of Central to the northeast where A17-091A is drilled is virtually unexplored and could contain connecting mantos, or chimneys. If I would assume a 500m long, 200m wide and 10m thick mineralized envelope there, this could result in another hypothetical 3Mt. If A17-100, which indicates a thinning out manto to the east, could materialize into a 500m long, 200m wide and 3m thick envelope, this could also add a hypothetical 1Mt. As a number of thin mantos more to the surface (depth of 200-250m) could connect West, East, South and Central, this could add another hypothetical 2–5Mt at most I believe.
If A17-081 can be deepened (which may not be possible) or redrilled, and generates the same results like A17-091A, things could get interesting, as for example a 500m x 300m x10m envelope could add a hypothetical 4.5Mt. When mineralization continues along the fault to the north and south, and/or to the east, much more is possible of course. An area of roughly 300m x 100m x 10m could add a hypothetical 1Mt, and Zone 3 is a large target. All in all, I do believe Tinka is on its way to a potential 50Mt plus. Depending on how things unfold at Zone 3, this number could get considerably bigger, of course.
In order to see how Tinka ranks among its peers, I updated the comparison table, added the 50Mt target and applied a longer minelife in my DCF model, adding to the NPV:
See Full Size Image
As I have indicated before, Tinka isn’t cheap but the stock deserves a premium in my view because of the quality and size of the project and people, and the takeover potential with several producers nearby looking for new zinc assets. The upcoming PEA (probably in Q2 2018) could potentially initiate a re-rating to C$1.00–1.25 levels if zinc prices could hold $1.40–1.50/lb levels, as a market cap of about 30–35% of NPV for a premium project isn’t anything out of the ordinary, as for example Arizona Mining traded at 36–60% of NPV since the PEA came out.
The company will most likely announce the upcoming drill hole results (holes 103 – 108) early next year. Most important assays for me will be A17-107, which is being drilled from the same platform as 091A, but angled to the east. Tinka is also planning more holes from this same platform, to get a better understanding of geology/mineralization around the rather complex fault/syncline situation, interpreting the data, refine the concept and go from there. The company is also looking for deeper mineralized structures below South, and this will be explored next year.
Conclusion
Tinka delivered a very interesting intercept in hole A17-091A, creating the possibility for extended mineralization to the east in Zone 3. I see a real opportunity to take the resource to a potential 50Mt for now. Who knows what else Tinka might find in 2018, when it will increase drilling at Zone 3, besides stepping out of the current resource. As there is so much mineralization on the property, management is hoping Ayawilca could grow into something really substantial. They are hopefully on their way to solve a complex puzzle, and the first big pieces are put in place now. The discovery journey is fascinating and educational for me so far, and let’s see how big Ayawilca can get.
Ayawilca project surroundings
The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, with an MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long-term commodity pricing/market sentiments, and often looking for long-term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources that more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.
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Disclaimer:
The author is not a registered investment advisor, and has a long position in this stock. Tinka Resources is a sponsoring company. The views, opinions, estimates or forecasts regarding Tinka’s performance are those of the author alone and do not represent opinions, forecasts or predictions of Tinka or Tinka’s management. Tinka has not in any way endorsed the information, conclusions or recommendations provided by the author.
All facts are to be checked by the reader. For more information go to www.tinkaresources.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
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