VANCOUVER (miningweekly.com) – Investors welcomed a report by TSX-listed base metals producer Ascendant Resources on Thursday that it has beaten its maiden 2017 production guidance after successfully executing a turnaround strategy for its underperforming flagship asset.
The news pushed the miner’s TSX-listed stock more than 10% higher early on Thursday, to C$0.84 apiece.
Within less than a year, Ascendant’s operating team has taken what was essentially an undercapitalised and underperforming mine and turned it into a free cash-flow generating operation with record production rates, well above those of previous operators.
The most telling result since acquiring the Honduras-based El Mochito mine, in December 2016, is that Ascendant has reported positive free cash flow for the fourth quarter ended December, allowing it to exit what president and CEO Chris Buncic billed as a “challenging yet rewarding” year, with $8-million cash in the treasury.
“While we are extremely optimistic about our 2018 outlook, we will continue to focus on key 2017 strategies centred around tonnage growth, correcting existing deficiencies as well as reinvigorating and training the work force. In 2018, our focus will turn to maximising free cash flow and long-term profitability during a period of continued stable operations,” Buncic told Mining Weekly Online in an interview.
Total contained metal production for the 2017 calendar year was 66.1-million pounds of zinc equivalent, exceeding the company’s guidance of 65.8-million pounds. During the fourth quarter, contained zinc equivalent metal output was 19.6-million pounds, up by 12% from the third quarter.
During December, the mill recorded record throughput of 69 578 t – an 81% improvement since January 2017. Milled production for the fourth quarter was 198 355 t, representing a 13% improvement over third-quarter production of 176 037 t.
According to Buncic, operations have continued to benefit from the ongoing improvement programmes within the operating environment and the introduction of new mining equipment. Processing recoveries remained relatively consistent throughout the year and are expected to remain consistent going forward.
“El Mochito is now a mine that can sustain and even improve on current throughput rates, while providing strong financial performance for years to come. We want to set the mine up to be a profitable enterprise four or five years down the line, when the zinc supply/demand equation might be closer to balance. We need the mine to be profitable at the market troughs too,” Buncic said.
The aim is to get the mine's costs down into the second-quartile, especially with rising zinc prices providing wind at the company's back.
Earlier this week, zinc again reached its highest in more than a decade on supply concerns. According to S&P Global Market Intelligence’s Metals & Mining, zinc prices averaged $1.31/lb for 2017 as a whole, and are expected to average above $1.46/lb in 2018 and about $1.41/lb in 2019.
Ascendant expects to produce between 41% and 65% more metal in 2018, as El Mochito ore grades are expected to improve with a production shift towards the higher-grade Esperanza and Nueva Este areas of the mine. The operation is expected to capitalise on conventional mining activities within smaller, but higher-grade ore zones.
The company guides for 2018 output of between 93-million and 109-million pounds of zinc equivalent metal, comprising 65-million to 73-million pounds of zinc, 24-million to 28-million pounds of lead and 900 000 oz to 1.2-million ounces of silver.
Buncic pointed out that the rest of the new mining equipment is expected to be fully deployed by mid-2018, supporting higher equipment availability for maintaining current production rates.
During 2018, Ascendant expects to maintain production rates of between 2 200 t/d to 2 400 t/d, while increasing mill feed grades and reducing costs.
Capital expenditure includes development costs, the balance of mobile equipment purchases, as well as exploration expenditures as the company continues to focus on expanding the overall size and grade of the resource base to support its long-term growth objectives.
Free cash flow is expected to climb to a range between $14-million and $20-million this year.
“With our forecast free cash flow, we will not be required to go back to market in order to fund our capital projects. We have several options on the table right now, and pending engineering studies and the release of a new NI 43-101 mineral resource estimate in the second quarter, we will be in a better position to decide on which avenues to take,” Buncic advised.
The company expects to release the latest round of exploration results later this month. Incorporating previous exploration results published in April and October 2017, Buncic noted that the report was expected to highlight the significant resource potential at El Mochito. Exploration work to-date has demonstrated the potential for greater tonnage at higher grades.
The company is also undertaking a review of various long-term optimisation programmes to support a lower cost structure and higher sustainable production rates which should be completed by mid-year.
“We are also monitoring several opportunities to potentially acquire another asset, with which we can repeat the turnaround process. Despite the potential for peak zinc pricing being forecast for 2019, we know that the number of projects in construction, or that are announced, will not be enough to meet the growing demand down the line.
“In 2018, Ascendant will continue to build on the successes of 2017 as we pursue further operational improvements, increasing head grade to the mill leading to improved value per tonnes milled while improving the contribution margin through a significant focus on cost cutting to drive profitability, Buncic said.