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Superior Lake Resources (SUP:ASX)

Exploration target defined as study nears completion

1 Video - Sep 18

Superior Lake Resources has announced a brownfield exploration target for its Superior Lake zinc project (‘the Project’) in Canada.  Highlights of the announcement include the following.

  • The brownfield exploration target ranges between 2.1 and 5.2 million tonnes at a grade of between 13.3% and 15.4% zinc.
  • The study focused on near-resource areas that can potentially be added quickly to the near-term mine life.
  • The exploration target excludes greenfield exploration potential.
  • The restart feasibility study is almost completed.

Analyst comment: while the initial resource (2.15 Mt at 17.1% Zn) underpins near-term potential at the Project, the exploration target highlights its long-term potential. Even with a low exploration target of 2.1 million tonnes, the size of the current resource is doubled. As shown in the images above, the exploration target is close to the existing resource and mine infrastructure. Thus, if those targets are successfully converted into a resource there is a strong probability they will also be converted into the mining inventory, thereby extending the Project’s mine life.

It is worth remembering that this exploration target takes into account only the brownfield potential, excluding the vast greenfield potential that has remained unexplored for more than 20 years. We look forward to initial exploration work at the Project, which is likely to commence later this year.

Site trip:we recently visited the Project in Canada and were impressed by what we saw. A standout feature was the significant surrounding infrastructure, which we believe will reduce the initial capital cost and facilitate future development of the Project. We will be releasing a virtual site trip video of the Project in coming weeks.

Capital Raising:  despite difficult equity markets in the junior resource sector, Superior Lake Resources recently completed a $5 million placement, at a 6% premium to the closing share price. Since then (24th August), the share price has rallied another 42% in anticipation of the upcoming restart study for the Project.

Valuation: We maintain our assessment of Superior Lake Resources as a SPECULATIVE BUY, and will review this following the release of the restart feasibility study.

$5 million capital-raising as study nears completion

1 Video - Aug 18

Superior Lake Resources (ASX:SUP) has released an announcement on funding and the progress of its restart study for the Superior Lake zinc project (‘the Project’) in Ontario, Canada.  Highlights of the announcement include the following.

  • Above-market placement raises $5 million (6% premium to closing share price).
  • Tribeca Investment Partners appointed to act as arranger for a project finance facility of up to US$60 million.
  • The restart study remains on track for completion during Q3 2018.

Analyst comments: This announcement from Superior Lake is strong on a number of fronts.

Firstly, the $5 million equity placement should see the company fully funded through to the end of the feasibility study, due for completion by mid next year. Moreover, it mitigates the market’s concern over short-term funding requirements, a major reason for the recent lag in the share price despite the strong on-going news flow.

Secondly, the appointment of Tribeca Investment Partners to arrange financing of up to US$60 million for future redevelopment is reassuring, given the stage of Project development at present. In fact, it’s uncommon for mining ventures to attract this level of support prior to the release of an initial development study. It signals not only Tribeca’s faith in the undertaking long term but also Superior Lake’s intent to rapidly advance development of the Project.

Finally, Superior Lake has again confirmed that the restart study is imminent. We expect positive results given the significant infrastructure that can be utilised, which reduces capital costs. Operating costs should also be relatively low, given the exceptionally high-grade ore.

We maintain our assessment of Superior Lake as a SPECULATIVE BUY.  That rating will be reviewed following the release of the restart study, at which time we will also provide initial valuation guidance.

Maiden resource exceeds expectations

1 Video - Jul 18

ASX:SUP has announced a maiden JORC resource (2.15 Mt at 17.7% Zn, 0.9% Cu, 0.4 g/t Au and 33.5 g/t Ag) for its Superior Lake Zinc Project in Ontario, Canada that ranks it as one of the highest-grade zinc projects in the world. This video reviews this results and highlights what it means to the future re-development of the project.

Written Report – Analysis – Developing Canada’s highest grade zinc project

1 Video - Jun 18

Developing Canada’s highest grade zinc project

Superior Lake Resources (ASX:SUP) recently acquired the Superior Lake zinc project in Canada. It was the country’s highest-grade zinc operation (3.5 Mt at 14% Zn, 1% Cu) for a decade before closing in 1998 as a result of ongoing low zinc prices. Any exploration work since has been limited, due to the continued low zinc price and the project’s fragmented ownership.

Why is this asset now viable?  The zinc price, now at near-record highs, is expected to remain that way for some time. With no exploration at the project in 20 years, its potential seems excellent. Additionally, existing infrastructure (mine development, roads, power, water and workforce) at the mine should reduce future development capital costs.

What work has been completed recently? SUP acquired the project in early 2018 and has since been reviewing and verifying historic data. That has seen the release of exceptionally high-grade results within the unmined region of the deposit, including the following.

  • UP-147: 33.2 m @ 18.77% Zn, 2.26% Cu
  • UP-149: 10.5 m @ 24.8% Zn, 1.33% Cu
  • UP-148: 15.8 m @ 30.05% Zn, 1.91% Cu

Valuation catalysts: the company will release a number of key announcements in coming months that should shape the future of the project. They include the following.

  • Initial JORC Resource – 2Q18
  • Identification of priority drill targets/3D geological model – 3Q18
  • Commencement of an exploration drill program (first for 20 years) – 3Q18
  • Initial capital estimates – 2H18
  • Development study – 1H19
  • Construction decision – 2H19

Analyst comments: the upcoming JORC resource is likely to confirm the Superior Lake zinc project as the highest-grade zinc asset on the ASX. Based on the historic resource and drill results, we expect the resource grade to be around 14% Zn and 18% Zn Eq, once by-products are accounted for. To put this grade into perspective, it equates to a gold grade of around 13 g/t Au (FM estimate – gold price US$1,300).

Post the release of the JORC resource (which is imminent) the first significant exploration program in more than 20 years will commence, including the first drill program. Initially, we anticipate that targets will focus around potential extensions to the resource areas, given these will be the easiest to convert to additional resources and hence extend the project’s mine life.

In addition to drilling, SUP plans to use downhole electromagnetics (EM) for, we understand, the first time at the project. EM has been used with great success at volcanic massive sulphide (VMS) ore deposits (such as those at Superior Lake) to identify additional mineralized zones or lenses. SUP non-executive director Peter Williams has vast experience in this area, having been heavily involved in the development and success of Independence Group and, more specifically, the discovery of the McLeay nickel sulphide deposit (Long nickel mine) at Kambalda, in which downhole EM played a major role. We believe the discovery of additional lenses at Superior Lake is likely to result in a significant share price re-rating.

Coinciding with the exploration program, SUP plans to release initial capital costs for project development. We see this as a critical step in the long-term development of the Superior Lake project, as it will give an indication of the future production profile.

Location, history & strategy for the Superior Lake zinc project

1 Video - Jun 18

Review of the projects location, existing infrastructure, history and corporate strategy.

Why the Superior Lake Project?

1 Video - Jun 18

Discussed with management what were the key factored which influenced their decision to acquire the Superior Lake zinc project.

Exploration strategy

1 Video - Jun 18
  • Review of the exploration potential at the project.
  • Discuss the company’s short and long term strategy.

Management – Why I joined Superior Lake?

1 Video - Jun 18

Discussed with CEO David Woodall why he joined Superior Lake.

Initiation Report

5 Videos - Jun 18

Superior Lake Resources (SUP.ASX) recently acquired the Winston and Pick Lake Zinc Projects in Canada, which were among the highest grade operations globally before their closure 20 years ago due to a period of sustained a low prices. The standout features of the project, include is the exceptional high grade zinc mineralisation, the excellent exploration potential and the existing infrastructure which could be utilised to reduce future capital costs. In the short term, there are numerous share price catalyst, including an initial JORC resource, exploration drilling as well as capital cost estimates to recommence production.