Amended Technical Report to be filed
CZN-TSX
CZICF-OTCQB
VANCOUVER, Sept. 14, 2016 /CNW/ - Canadian Zinc Corporation
(TSX: CZN; OTCQB: CZICF) reports that, as part of its ongoing
financing and concentrate marketing activities for its 100% owned
Prairie Creek lead, zinc, silver mine in the Northwest Territories, the Company has
identified an error in the life-of-mine economic model included in
its 2016 Preliminary Feasibility Study.
The error caused an overstatement in gross smelter revenue to
$3.7 billion from $3.3 billion, over the projected 17-year life of
the Prairie Creek Mine. The gross metal value of production (using
the same assumptions) remains unchanged. The overestimation
resulted from the inclusion in the economic model of smelter
revenue for bi-product metals in primary concentrates that may not
be payable, depending on final concentrate contract terms.
All other inputs into the economic model and all technical
aspects of the 2016 Preliminary Feasibility Study ("PFS")
remain unchanged, including all mineral resource and reserve
estimates, mining plans and production rates and estimates of
capital and operating costs and assumptions on concentrate
treatment charges and penalties. However, royalties and taxes
payable also reduce by $153 million
over the projected life of the mine, partially offsetting the
impact of lower revenue.
"It is important to note that the error in the economic model
has no impact on reserve estimates, metal production or mine life
and, notwithstanding the reduction in revenue, the revised
financial results remain strongly positive and continue to
demonstrate a robust project with undiscounted cumulative cash flow
of $710 million at metal prices of
US$1.00/lb for zinc and lead and
US$19/oz for silver", said
John Kearney, Chairman and Chief
Executive. "The revised financial model yields a Pre-tax NPV
of $284 million at an 8% discount
rate, with an IRR of 23%, and a Post-tax NPV of $155 million, with a post-tax IRR of
18%."
Revised Financial Analysis
The net effect on projected cash flows of the adjustment in
smelter revenue, with all other factors and inputs remaining
unchanged, at metal prices of US$1.00/lb for zinc and lead and US$19/oz for silver and Cdn/US exchange rate of
1.25:1, results in an undiscounted cumulative cash flow of
$710 million at the base case with a
Pre-tax Net Present Value ("NPV") of $284
million, using an 8% discount rate, with an Internal Rate of
Return ("IRR") of 23% and a Post-tax NPV of $155 million, with a post-tax IRR of 18%,
compared to a NPV of $509 million
using an 8% discount rate, with an IRR of 32%, and a Post-tax NPV
of $302 million, with a Post-tax IRR
of 26%, as originally reported in the PFS. The pre-tax payback
period increases from three years to four years out of the
projected 17 year mine life.
The table below shows revised Pre and Post-tax NPVs, at 5% and
8% discount rates, and Internal Rates of Return (IRR), all at a
Cdn/US exchange rate of 1.25:1 and demonstrate the sensitivity and
leverage of the Prairie Creek Mine to various metal price
scenarios.
|
|
|
Metal
Prices
|
Pre-Tax
|
Post-Tax
|
Zinc/Lead
US$/lb
|
Silver
US$/oz
|
Undiscounted
$M
|
NPV
(5%)
$M
|
NPV
(8%)
$M
|
IRR
%
|
Undiscounted
$M
|
NPV
(5%)
$M
|
NPV
(8%)
$M
|
IRR
%
|
0.80
|
17.00
|
99
|
-
|
(42)
|
5.0
|
35
|
(38)
|
(70)
|
2.2
|
0.90
|
18.00
|
405
|
202
|
121
|
15.0
|
233
|
100
|
44
|
11.1
|
1.00
|
19.00
|
710
|
405
|
284
|
22.5
|
431
|
235
|
155
|
17.9
|
1.00
1
|
19.00
1
|
979
|
585
|
429
|
28.5
|
598
|
349
|
249
|
23.1
|
1.10
|
20.00
|
1,016
|
608
|
447
|
29.1
|
623
|
366
|
262
|
23.8
|
1.20
|
21.00
|
1,322
|
811
|
611
|
35.2
|
810
|
493
|
366
|
29.0
|
1.30
|
22.00
|
1,627
|
1,014
|
774
|
40.9
|
1,002
|
624
|
473
|
34.1
|
|
1. Foreign Exchange
assumed to be $1.375CAD:$1.00US on this line only
|
|
|
|
|
An Amended Technical Report in accordance with National
Instrument 43-101 Standards for Disclosure for Mineral Projects
("NI 43-101") will be prepared and filed on SEDAR as soon as
possible as part of which the economic model will be rechecked
again.
The summary of the impact of the overstatement in the
calculation of smelter revenue in the economic model presented in
the 2016 Preliminary Feasibility Study and the summary of the
revised financial cash flow model reported in this news release are
preliminary and subject to further review, restatement and/or
confirmation in the Amended Technical Report.
2016 Preliminary Feasibility Study
The 2016
PFS and the Prairie Creek Property Prefeasibility Update
NI43-101 Technical Report (filed on SEDAR on May 12, 2016) were completed by AMC Mining
Consultants (Canada) Ltd., ("AMC")
and Tetra Tech Inc. with input from Canadian Zinc personnel and
consultants. Canadian Zinc personnel were primarily responsible for
the financial model and inputs and the financial analysis and for
Section 22 "Economic analysis" of the Technical Report.
The 2016 PFS was undertaken to incorporate the increased mineral
resources and mineral reserves, construction and use of an all
season road, advanced engineering details and updated capital and
operating costs.
The projected average annual mine production, which remains
unchanged, consists of approximately 60,000 tonnes of zinc
concentrate and 55,000 tonnes of lead concentrate containing
approximately 86 million pounds of zinc, 82 million pounds of lead,
1.9 million pounds of copper and 1.7 million ounces of silver.
In the 2016 PFS, the Company generated estimates for indicative
"world smelter terms" with respect to payables, treatment charges
and other standard terms. However in the 2016 PFS economic model
revenue credits were included for all contained metal, and the
payability revenue for lead and zinc was calculated incorrectly in
the model. In addition, it is projected that, over its life, the
mine will produce 14,000 tonnes of copper, contained mostly in lead
concentrate, and the assumed value of this copper was included in
gross revenue calculations in the economic model. This copper
revenue is unlikely to be achieved unless a separate copper
concentrate is produced, which was not incorporated in the PFS.
Canadian Zinc has signed MOUs with each of Korea Zinc and
Boliden for the sale of zinc and lead concentrates. The MOUs set
out the good faith intentions of Canadian Zinc and each of Korea
Zinc and Boliden to enter into concentrate sales agreements for the
concentrates to be produced from the Prairie Creek Mine on the
general terms set out in the MOUs, including commercial terms that
are to be kept confidential. No formal concentrate sales contracts
have yet been concluded. The MOUs do not provide for agreed or
fixed payable percentages or deductions and provide that payables,
treatment charges and penalties will be negotiated in good faith
annually during the fourth quarter of the preceding year. The MOUs
reflect the understanding of the parties and constitute the basis
for continued negotiation of definitive binding sales agreements,
which the Company expects to negotiate and conclude in parallel
with concluding senior financing for the development of the Prairie
Creek Mine.
Conclusion
The revised base case economic model continues to indicate a
robust project at consensus forecasts for the long-term prices of
lead and zinc and there remains good potential for additional
project optimization, enhanced economics and further extending the
life of the Prairie Creek Mine.
There are a number of recommendations for potential enhanced
economics identified in the 2016 PFS, including:
- Additional mill studies to further optimize the mill circuit
capacity to increase both ore throughput and metal recoveries,
including possible mill expansion.
- Further metallurgical tests to optimize the process flowsheet,
particularly reagent regimes.
- Further study of on-site or off-site processes to reduce
deleterious components of concentrate, thereby reducing smelting
penalties.
Any improvements that can be achieved in the metallurgical
process to enhance the quality of the concentrates and improve
payability will increase the net smelter revenue and enhance the
realization of as much as possible of the contained gross metal
value.
The long term outlook for lead and zinc remains very positive
and Canadian Zinc plans to continue to work towards completion of a
definitive bankable feasibility study and evaluate all alternatives
and possibilities for raising the financing necessary to complete
development and put the Prairie Creek Mine into production.
Qualified Person
This news release has been reviewed and approved by Alan Taylor P.Geo. COO & VP Exploration and
a Director of Canadian Zinc, who is a Non-Independent QP under NI
43-101.
An Amended Technical Report in accordance with NI 43-101 will be
filed on SEDAR as soon as possible. For the full details and
further information with respect to the key assumptions,
parameters, and risks associated with the results of the modified
PFS, including the mineral resource and reserve estimates included
therein, and other technical information, please refer to the
complete Amended Technical Report when it is made available at
SEDAR.
About Canadian Zinc
Canadian Zinc is a TSX-listed exploration and development
company trading under the symbol "CZN". The Company's key project
is the 100%-owned Prairie Creek Project, a fully permitted,
advanced-staged zinc-lead-silver property, located in the
Northwest Territories. Canadian
Zinc also owns extensive mineral exploration licences in
central Newfoundland.
Cautionary Statement – Forward-Looking Information
This news release contains "forward-looking information"
within the meaning of applicable Canadian securities legislation
and "forward-looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of
1995 (collectively, "forward-looking statements").
Forward-looking statements in this news release include, but are
not limited to: statements with respect to the extent and impact of
the overstatement described in this news release; expectations
regarding the filing of an amended technical report and the
expected content of that technical report; statements with
respect to the Company's proposed Prairie Creek Mine operations,
including life-of-mine, cash flow and other economic projections;
the future mine grades, recoveries and production rates expected
from the Prairie Creek Mine; the estimation of mineral reserves and
mineral resources; the realization of mineral reserve and mineral
resource estimates; the terms of any contracts the Company may
ultimately enter with respect to the sale of zinc, lead, silver or
copper concentrates; and the outlook for future prices of zinc,
lead, silver and copper. Such forward-looking statements are
made pursuant to the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995.
Since forward-looking statements are based on assumptions and
address future events and conditions, by their very nature they
involve inherent risks and uncertainties which could cause actual
results or events to differ materially from those reflected in the
forward-looking statements, including risks relating to, among
other things: the preliminary nature of the calculations
contained in this news release, mineral reserves,
mineral resources (including with
respect to the size, grade and
recoverability of mineral resources), results of
exploration, reclamation and other post-closure costs, capital and
construction costs, mine production costs, the timing of
exploration, development and mining
activities, commodity prices and the terms of commodity sales
agreements, and all of the other risks described under "Forward
Looking Statements" in the Company's Annual Report filed on SEDAR
or EDGAR.
These forward-looking statements are based on certain
assumptions which the Company believes are reasonable, including:
that the preliminary calculations of the overstatement described in
this news release, and the impact of that overstatement, are
correct and will not be materially different from the complete
calculations contained in an amended technical report; that the
Company will file an amended technical report on the Prairie Creek
Mine; sustained zinc, lead, silver and other commodity demand and
prices, and that such prices will be materially consistent with
those anticipated; the proposed development of the Company's
mineral projects will be viable operationally and economically and
proceed as planned; the actual nature, size and grade of the
Company's mineral reserves and resources are materially consistent
with estimates; and all of the assumptions described under "Forward
Looking Statements" in the Company's Annual Report filed on SEDAR
or EDGAR. The Company does not undertake to update any
forward-looking statements that may be made from time to time by
the Company or on its behalf, except in accordance with applicable
securities laws.
Mineral resources that are not mineral reserves do not have
demonstrated economic viability. Inferred mineral resources are
considered too speculative geologically to have economic
considerations applied to them that would enable them to be
categorized as mineral reserves. There is no certainty that mineral
resources will be converted into mineral reserves.
Cautionary Note to United States Investors
The United States Securities and Exchange Commission ("SEC")
permits U.S. mining companies, in their filings with the SEC, to
disclose only those mineral deposits that a company can
economically and legally extract or produce. We use certain terms
in this press release, such as "measured," "indicated," and
"inferred" "resources," which the SEC guidelines prohibit U.S.
registered companies from including in their filings with the
SEC.
SOURCE Canadian Zinc Corporation