Kagara Zinc is an Australian producer operating primarily near Cairns in north Queensland and to date its record means that it is replacing reserves faster than it is mining them, with considerable scope for expansion. Kagara is listed on the ASX (ticker symbol KZL, market capitalisation approximately A$1.07 billion, US$820 million) and at the Mining Journal 20:20 Zinc Conference in London, Executive Chairman Kim Robinson outlined the company’s progress to date and plans for the future.
Kagara was founded in 1981 as an unlisted company to explore for and mine gemstones and tantalite, and subsequently gold, in the Forrestania – Southern Cross Greenstone Belt in Western Australia. After a series of corporate developments, which included Kagara accepting shares in Forrestania Gold NL in exchange for Kagara’s properties and subsequently accepting cash and scrip from LionOre Mining when the latter company took over Forrestania, Kagara turned its attention to zinc. You might be wondering what does that mean for gold? You can read more in this overview.
Kagara’s major project is the Mt Garnet operation, where there is a strongly growing production profile. Zinc production in 2005/06 is scheduled at 35,000 tonnes; the company’s plan is to raise this to 50,000 tonnes per annum (tpa) in 2006/07 and then to double to 100,000 tpa by 2008/09. Copper production, meanwhile, ran at 6,500 tpa in 2004/05, and this is forecast to increase by a factor of eight to 45,000 tpa by the same time (via 25,000 tonnes in 2006/07). Mt Garnet is 2½ hours’ drive from Cairns and zinc is treated at the Townsville refinery on the coast to the south.
In addition to Mt Garnet, Kagara recently purchased the Thalanga base metal plant at a capital cost of A$80 million (approximately US$60 million), which should be up and running in October this year. This will produce 25,000 tpa of copper metal. This has some implications on the gold market as well, more available here.
The company has three integrated production hubs. Mt Garnet is the production plant, taking feed from the Surveyor, Balcooma and Dry River South orebodies. Two further orebodies, the Mungana and the Red Dome, are under development. There are further exploration targets, but those listed here are the priorities.
The latest Reserve and Resources Statement shows a total of 2.59 million tonnes of zinc reserves, grading 11.0% zinc, 0.7% copper, 2.5% lead with 54 grammes/tonne (g/t) silver and 0.33g/t gold. Copper reserves (most of which are currently contained at the Balcooma deposit) amount to 391,000 tonnes grading 5.8% copper, 0.4% each lead and zinc with 14.0 g/t silver and 0.41 g/t gold. Resources (excluding the reserves) amount to 2.45 million tonnes of zinc deposits grading 15.7% zinc, 2.2% copper, 2.3% lead with 126 g/t silver and 0.7 g/t gold while the copper resources amount to 2.34 million tonnes at 3.4% copper, 0.3% zinc, 0.1% lead, with 18 g/t silver and 0.4 g/t gold.
Balcooma is open pit and going underground and boasts a number of high priority drill targets, while Dry River South, which lies 1.8 kilometres to the south of Balcooma, is seen as having considerable extra potential as it is still open down plunge “and growing”. Balcooma and Dry River South will provide Mt Garnet with feed for at least the next three years. There is considerable scope for these deposits to be expanded, with over 1,200 square kilometres of prime exploration land and with more prospective land surrounding the prospects.
As illustrated in the figure detailed above, the company’s emphasis is on expansion. As well as the acquisition of Thalanga, a new treatment pant is to be brought on stream in April 2008 at Chillagoe, for which the main feed will be the Mungana deposit currently under development.
Kagara is low cost; at current by-product prices it is arguable that, taking all by-product credits against zinc then the zinc cost of production is negative. As the emphasis leans towards copper over the next two years (and subject of course to price action) it remains to be seen whether the company changes its accounting policies to take by-product credits against copper.
As Mt Garnet has bedded down the company has increased its exploration in the Chillagoe and Walsh River areas, which have always been Kagara’s next targets for developing its operations. The Chillagoe treatment plant will come on stream in April 2008 and will be fed by the Mungana deposit. This is a high-grade massive sulphide overlain by copper and polymetallic deposits, surrounded by a gold-bearing pocket. The plan is to mine out the high-grade base metals, which are estimated as grading 14.5% zinc, 2.8% copper along with lead, gold and silver, before accessing the gold resource. The exploration decline should reach the orebody in nine months’ time.
Three kilometres to the south of Mungana is the Red Dome copper-gold porphyry deposit that has previously been mined by Niugini Mining. A development decision will be taken in some three years’ time, but conceptually this could produce 200,000 ounces per annum of gold.
The company’s largest shareholder, with 14% of the equity, is Korea Zinc, the world’s largest zinc producer and which purchases all Mt Garnet’s zinc production. In an interesting change of direction with respect to its copper output, Kagara is amending its copper marketing campaign. At present, Kagara’s copper and lead concentrates are being sold into China, but as of the end of this year, 80% of the copper concentrates will be sold into India as the company diversifies its consumer base between the world’s two fastest growing large-scale economies.
Kagara is fully funded and has strong cash flow so there is no need for any further fund raising. Indeed, tantalisingly, Mr. Robinson suggested that there may even be a share buyback in future.