"A big milestone late in 2019 was Tinka Resources’ strategic investment with Buenaventura. This is a big step forward for the company as it gives a stamp of approval from the biggest mining company in Peru, which should also provide confidence for our investors."

Dr. Graham Carman

CEO, TINKA RESOURCES

June 04, 2020

What were the main milestones achieved by Tinka Resources in 2019?

Tinka Resources was able to put out a PEA for the company’s Ayawilca Zinc Zone project in mid-2019, based on the resources at the end of 2018 containing ~7 billion pounds of zinc, one of the largest undeveloped zinc deposits in Latin America. We were able to show a robust underground mining project with a 21-year mine-life producing both zinc and silver-lead concentrates, with good infrastructure (power, water, roads) and strong community relationships. We also had a successful year in our exploration programs at Ayawilca with the discovery of a new silver zone, and we believe that there is a lot more potential to further grow the zinc and silver resources as well as further optimize the project in 2020 and beyond.

Another big milestone late in 2019 was Tinka Resources’ strategic investment with Buenaventura. This is a big step forward for the company as it gives a stamp of approval from the biggest mining company in Peru, which should also provide confidence for our investors. It was also great that our largest shareholder, Sentient, continued to support the company in the private placement. 

How will the Tinka Resources and Buenaventura partnership work moving forward?

Buenaventura has a breadth of mining experience in central Peru. It has two mines within a 50 km radius (Uchucchacua and Brocal) so can provide expert advice and project synergies. Buenaventura bought a 19.3% stake in Tinka Resources at a price of C$0.243 per share, which was a 100% premium to the share price when it was announced. The net proceeds from the investment with Buenaventura and Sentient (C$18.5 million), which was closed in January 2020, will be used to advance the Ayawilca project through further exploration and development over the next few years.

There is still an opportunity for other strategic investors to get involved in the company’s success. From Tinka’s perspective, to get one or two additional companies interested in the project is ideal for existing shareholders, and my role as CEO is to maximize this value and continue to attract new investors including other large corporates.

Why do you believe there has been a downward trend in the zinc prices?

There are two main reasons for the downward trend. The year began with negative sentiment around an economic downturn in China, one of the main producers and users of zinc, where zinc is mostly used in modern cars for the prevention of iron rust. More recently, we have seen a sudden drop in zinc prices along with other base metals due to the corona virus pandemic, which reduced demand for commodities and services in almost all industries.  Supply chains have been impacted and some mines have been shuttered or had production reduced.  Predictions for 2020 are that there will be a mild surplus in zinc, but there is unlikely to be a substantial build-up of metal as miners struggle to make headway in these poor economic conditions.  Once the world economy picks up, I would expect to see a significant improvement in the zinc and copper prices later in 2020.  

Another factor has been the increase in treatment charges (TCs) for zinc concentrates at the smelters. Every year, miners sit down with smelters and negotiate a TC. Currently, TCs are at one of their highest points in the last 20 years, at just below US$300 per tonne. The TCs are high as there has been a build up of zinc concentrates, however, with the supply reduced we are likely to see the prices move downwards and more in the favour of the miners from 2021.    

Considering the current market for zinc, how will Tinka Resources’ project timeline be affected by the volatility?

The timeline for work at Ayawilca in 2020 has been impacted due to corona virus, as our drill programs have been delayed during the lockdown in Peru.  Tinka is actually in a very good place as we are fully funded for the next two years and therefore do not need to raise additional capital to get our programs completed.  We are drill ready as soon as we get the green light to mobilize, which could be during the second half of the year.  We have 6,000 to 10,000 metres planned of high priority drill metres to complete in 2020, and, as long as this program can be completed this year, our time line remains on track.  We expect to have an expanded and improved zinc resource late 2020, and then be able to commence a PFS during 2021-2022.  As long as permitting can be completed on time, first production at Ayawilca could be in 2024. 

How has Tinka Resources been affected by the COVID-19 outbreak?

We follow strict self-isolation protocols pursuant to the Peru lockdown requirements. Exploration is on hold during the Peru state of emergency, with a skeleton crew at camp. Once restrictions are relaxed, we will mobilize our exploration teams and commence the 2020 drill program.

How do you think the coronavirus pandemic will impact the mining industry as a whole?

On the positive side, there will be a reduction in supply from the shutdown or production cuts at many operations, which will mean base metals prices should recover quicker once we get back to more normal supply-demand conditions. Some gold miners could do very well in these times of uncertainty, and I expect gold prices to remain strong for a period of time. Higher gold prices will bring back more generalist investors to the mining sector, which ultimately will be good for the whole mining industry. I am of the view that copper and zinc prices will begin to move much higher later in the year or in 2021.

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