Tinka Resources: 32.7 million ounces of silver (and growing); a promising multi-commodity play in central Peru
Established in 2003, Tinka Resources Limited (TSXV: TK) is a multi-commodity junior resource exploration company. Tinka’s focus is on the exploration and development of its extensive land package, located in the lower Andes of Central Peru; specifically the Cerro de Pasco Mining District, which is host to multiple world-class base and precious metals mines. The projects are located 40 kilometers northwest of Cerro de Pasco in the richly mineralized silver-lead-zinc belt of Central Peru — with 46 contiguous mineral tenements covering an area of 9,827 hectares (nearly 100 square kilometers).
Tinka’s flagship property consists of two areas of interest: the Ayawilca Zinc Project and the Colquipucro Silver Deposit, located in central Peru — approximately 190 kilometers northeast of Lima (the capital and largest city in Peru). Ayawilca is an exploration project with tremendous upside potential, while Colquipucro is a silver project consisting of a 32.7-million-ounce silver resource (over $750 million in ground) already defined — and is expanding. The Colquipucro’s silver deposit is high-grade, open-pit-style silver; the two projects are within the same 100% owned land package and are only 1.5 kilometers apart. The property is within close proximity of four famed, high-grade silver mines (Cerro De Pasco Colquijirca, Raura and Uchuccahacua). Surrounded by major mining projects, Tinka’s massive land package has excellent infrastructure (roads and power lines cross the property).
Colquipucro is a sandstone-hosted, bulk tonnage, oxide silver deposit with mineralization that begins from surface. It is believed to be the first documented deposit of this type in Peru. The sandstone is underlain by sedimentary breccia, siltstone and carbonate that host oxidized massive and semi-massive sulphides rich in zinc, silver and lead; this is the equivalent to the unoxidized sulphide mineralization found at the Ayawilca project.
Ayawilca is a large area that hosts massive and semi-massive sulphide mineralization, the dominant economic mineral being sphalerite (zinc sulphide). The mineralization is blind (not visible at surface), and is hosted by the same sediments found below the silver-bearing sandstones at the Colquipucro project, 1.5 kilometers to the north.
Investor optimism with Tinka lies in the risk-to-reward analysis. With a current share price of $0.56 (12-month high/low is $1.25/0.48), 88,740,422 shares issued, and market capitalization of just under $50 million, Tinka has significant upside potential. Take the silver deposit for instance. While officially categorized as an “inferred” resource, it is actually quite close to moving to “measured and indicated” and is expected to grow from the present 32.7 million ounces to approximately 40 to 50 million ounces (with the upcoming infill and step-out holes planned for the fall). With the price of silver modeled at $21.50 per ounce (currently silver’s spot price is $23.10 per ounce), a 5% discount rate and 35 million ounces, the discounted net present value is estimated to be $2.22 per share. Since there is no exploration risk to this estimate, the downside risk is mitigated to the commodity price and global macroeconomic trends/events.
With the Colquipucro silver deposit as a ‘floor’ to valuation, let’s take a look at Ayawilca, a discovery made in 2011 of high-grade zinc (contained in massive sulphides and sedimentary breccias). Of the 23 initial drill holes completed, 21 have encountered consistently positive results, with two holes spotted 400 meters apart, yielding 70 meters of 4.7% zinc and 215 meters of 5.3% zinc; arguably with latter intercept being one of the most spectacular drill intercepts in the past three decades in this region. The key to the potential value of Ayawilca lies in the geophysical surveys, which show multiple zones within the discovery area covering 400 meters of strike. However, the excitement lies in the areas yet to be drilled, covering an additional 1,300 meters of ground where these surveys indicated accelerated magnetics and conductivity. The discovery holes have been drilled in areas where the geophysics showed high levels, but in the recently permitted areas to the east and northeast, the chargeability and resistivity is around two to three times as intense. Since the zinc sulphides are perfectly correlated to these surveys thus far, the upcoming drill campaign promises to be exciting.
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Until Tinka drills out the newly permitted areas (which has already started), it would be impossible to assign a valuation metric on the discovery/deposit. That said, similar deposits in the Cerro de Pasco Mining District suggest that each 100 meters of strike consists of 10 million tonnes (currently zinc’s spot price is $.84 per pound). The total strike length is 1,700 meters with 400 meters already confirmed via prior drilling. In other words, there is considerable upside potential here too.
Robust project economics and strong prospective future gains aside, knowing how to effectively navigate Peruvian mining waters is vitally important. Tinka’s senior management is an accomplished team of technically skilled, experienced professionals, whose knowledge and understanding of the intricacies of working in Peru cannot be overstated. Peru, the world’s third largest zinc and silver producer, anticipates $10 billion in mining investment this year.
For investors, the Tinka Resources investment angle, as I see it, is this: the Colquipucro silver asset protects investors from downside risk — while affording investors the further upside potential of the Ayawilca zinc project for little to no premium.
Ty Facts on Tinka Resources:
Colquipucro Silver Deposit
- 32.7-million-ounce silver resource already defined and with upcoming infill drilling will likely provide additional resources
- Strategic location
- Phase 2 drill program completed
- Open-pit mine potential within easily mined fractured sandstones
- Excellent metallurgy
- Exploration target upside
Ayawilca Zinc Project
- New discovery of massive and semi-massive zinc and lead sulphides (not oxides) made in 2011
- Found by drilling an induced polarization geophysical anomaly
- Only the western portion of the target has been drill tested
- The structural setting and mineralization at Ayawilca has similarities with Colquipucro
- Tinka has resumed work at Ayawilca in preparation for drilling
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