A mere five years after it was launched, Pasinex Resources Ltd. (CSE: C.PSE, Forum) has distinguished itself by being able to bring a zinc mine into production at a time when other zinc mining operations are shutting down.
The company has achieved that feat by developing its high-grade Pinargozu mine in Turkey, and make a profit in the process, without going through the usual development and financial hoops that are considered the norm in North American.
Now after pledging to double its production to 60,000 tonnes this year, the company is looking forward to increasing investor confidence in its strategy by announcing a NI 43-101 compliant resource estimate for Pinargozu later this year.
Stockhouse recently caught up with Pasinex President and CEO Steve Williams and asked him to discuss what investors can expect to see from Pasinex in the next few months as it continues its exploration and development efforts in Turkey.
1. What is the investment case for Pasinex right now?
Pasinex Resources is in zinc production and exploration. Our aim is to build Pasinex to a mid-tier zinc mining company and we are on the way! We are in Zinc as the zinc price rises. This year we will produce 40,000,000 lbs of zinc at a 50% pre-tax margin. However, we still have a lot of exploration upside. We believe the current deposit can be a lot bigger than we have currently delineated and that there are more similar deposits to be found north and south of the current deposit (Pinargozu).
2. What sets you apart from the competition in the zinc space?
Pasinex Resources has managed to fast track a discovery that was made in 2013 to immediate production. We had Cash Flow practically from day one and 2016 was our first profitable year. Most of our peers are just exploration opportunities and given the usual cycle of time that it takes to build mining – most of them will miss this zinc price up-cycle. Pasinex is producing and thus benefiting right now on the higher zinc prices. For our shareholders – this should strengthen our share price as the zinc price strengthens.
3. Can you describe your flagship project and explain what you are doing there right now?
Our flagship project is called Pinargozu. It is a 50 / 50 joint venture between Pasinex and a Turkish mining company called Akmetal AS. At Pinargozu, we are mining this year 60,000 tonnes of direct shipping ore (DSO) at 32% Zn. This material we mine, crush and sell. No processing is needed. Thus you could say the DSO nature of our ore has made the project viable and continues to be a huge competitive advantage.
So, at Pinargozu, we have profitable mining underway (50% pre-tax margin). However, we still have a significant exploration upside. We believe there is the opportunity to show that Pinargozu has much deeper sulphide roots than currently delineated and so the resource can be much bigger. Secondly, there is the likelihood that there are more, similar type deposits to be found on the north-south strike of Pinargozu. So, exploration continues both as drilling at Pinargozu and regional geological exploration, in the vicinity of Pinargozu.
4. What have been your major accomplishments so far this year?
The biggest achievement to date at Pinragozu is to demonstrate that we now have significant production (annual forecast production this year of 60,000 tonnes) and that as a result of this productivity we are spinning off a 50% pre-tax profit. Our financial results from Q1 2017 already show this performance. We expect this to continue throughout the year.
5. What are your priorities for the balance of 2017?
Our major priority in 2017 is to demonstrate to our investors and the market that the target performance we have set ourselves (60,000 tonnes of DSO material at 32% Zn and 50% pre-tax margin) will be achieved. Our other major objective in 2017 is to continue to grow the resource at Pinargozu. We have two drills constantly running there with the objective of delineating more resource. Finally, another key deliverable this year is to publish our maiden resource on Pinargozu. We have appointed the consultant on this job (CSA Global) and they are already at site working on this task.
6. How important is it to be able to announce a NI 43-101-compliant resource estimate for the Pinargozu mine?
It is very important that we announce our maiden resource at Pinargozu. We have had an internal resource for some time – we need this for mine planning. However, it is now time to make this resource independent and publish it to the market. This will enable us to demonstrate to the market that we have several years of high grade resource in front of us. This is a key objective for this year.
7. What are the implications of the recent high-grade zinc discovery to the south of the Pinargozu mine?
We believe that the Pinargozu deposit can grow to be a much bigger deposit than we have currently delineated. The mineralization trends to the south east from the current mineralization. So, discovery of drill intercepts to the south are very important because it shows us where the mineralization is probably trending and opens up the potential to increase the resource.
8. You have said that you aim to double your production rate to 60,000 tonnes this year. Do you forsee further increases in production in 2018 and 2019?
Yes – the doubling of production from 2016 to 2017 is now underway. Our Q1 2017 results are already on target. We foresee the opportunity to make some further increases in production. I expect that we may be able to make some incremental increase in production in 2018 but not double – perhaps 20 – 25% more. The priority, at the moment, is to continue to grow the resource. If we can significantly grow the resource over the next couple of years – then we will look at further step ups in annual production rate.
9. Having reported a profit in the first quarter of 2017, can the company look forward to even greater profitability in the near future. If so, how will that be accomplished?
Yes – If we achieve our target of 60,000 tonnes of production for 2017 (and we are on our way with Q1 2017 results), then, I believe we will see very strong profitability in 2017. I think that 50% pre-tax margin from the JV company is very doable this year.
10. What are the pros and cons right for a Canadian company like Pasinex, which is operating in Turkey?
There are several major advantages of doing mining and exploration in Turkey:
(1) Turkey has great geology. It is a tectonic island with lots of mineralization as a result of frequent tectonic movements. It is also grossly underexplored. So, lots of opportunity there.
(2) The country has opened up for foreign investment and has “liberalized” their commercial code to make it easy and transparent for foreign businesses in Turkey.
(3) The government sees mining as one of its important flanks to continued economic growth and general wealth improvement in Turkey. This means that companies like us are supported in Turkey.
(4) Turkey has excellent infrastructure. One of the reasons we were able to get a successful mine off the ground and operating so quickly was because of the excellent infrastructure near us. This is roads, airports, major cities with supplies, electricity and ports. All were very near to us and readily available without us having to spend any money on these.
The largest challenge for a company like Pasinex in Turkey is the social and cultural differences. That applies not only to the culture of the people and the business culture but also to things like reporting systems, accounting systems etc. This is always a challenge when one is a foreigner in a new country.
11. Can you give us your view on the outlook for the price of zinc and copper?
We are bullish on both the prices of copper and zinc.
(1) Zinc is used 65% for galvanizing steel and China consumes 50% of the worlds zinc. There was a real drop off in the mine supply side of zinc over the last three years because of the closure of some very big zinc mines. Though there has been some slowing of growth in China – the demand for zinc, for steel galvanizing, is still there. China is continuing to need and to consume zinc. So – zinc stocks in warehouses have continued to drop this year. I therefore expect there will be another rally in the zinc price in the fall of this year (2017).
(2) Copper is also tied to global economic growth. Copper is used in construction for electricity and plumbing. So, again, China is very important to the global consumption of copper. I expect the copper price to slowly improve. I do not expect the sort of explosive price surge as we saw for zinc in 2016 but nevertheless I do expect to see strengthening of the copper price over the next year or two.
12. Can you give us an update on what your plans are for the Golcuk project this year?
Golcuk is our copper project in the north of Turkey, it is wholly owned by Pasinex and it is located in a province called Sivas. Golcuk is still an early exploration opportunity. We have recently undertaken a preliminary drill program there and as well, we have brought in some global experts to help us on the exploration. This information (drilling and consultants) will help us to decide where we go next on the exploration there.
13. Does your company have sufficient funding it place to finance the exploration and development programs that it is planning this year?
The exploration for Pinargozu is all funded from the mine operation. In fact, we have been expensing all exploration costs there just as any other operating cost. Golcuk exploration however is funded from the corporate entity of Pasinex Resources Canada. Today, we have sufficient funds to meet our needs for exploration at Golcuk for the next year.
FULL DISCLOSURE: Pasinex Resources Ltd. is a paid client of Stockhouse Publishing.