Why Chesapeake’s Zinc Might be in the Sights of Chinese Miners

It has long been taken as a given that a large mine with gold as the predominant metal should be of interest to a mega gold miner. However in the last year the old theories have been overthrown as gold and silver have remained bogged down in broader disinterest while base metals have roared back to life, in the process, altering the long-ago calculated economics of many gold projects in such a way that the base metals now become the most tempting part of a project.

As we have noted before the Zinc component at Chesapeake Gold Corp.‘s (TSXV: CKG | OTCQX: CHPGF) (“Chesapeake”) Metates project is a tempting inducement for those who think beyond the gold space. In this piece we shall look at how Zinc’s storming performance over the last 18 months has changed not only the project economics but also the roster of potential buyers for the project.

Going All Sensitivity

It is interesting to ponder what different prices might do to the Metates model. We took the price scenarios of the last PFS of Chesapeake and reengineered them to show the original base case inputs and using the current metals prices. The relative static performance of gold and the less ebullient silver price became mere sideshows when the new Zinc price was added in. As can be seen from the table below the old eceonomics have been left in the dust by the new reality of a Zinc-powered project.

As can be seen the total revenues soar, the NPV goes crazy and the years until payback show a meaningful fall. Moreover for a base metal major ownership of Metates would give them a seat at the big table with the likes of Glencore because of the size of the base metal output. Indeed Metates is a rebalancing force in the Zinc mining league tables for whoever grabs it. Pondering the ranks of base metals miners out there that might be able to pull this off the most likely candidate appears to us to be the entity known as MMG, which is less well-known to the Canadian mining fraternity than it is in Australian parts.


The company was born out of one of the great debacles of 2008 when OZ Minerals, the ASX-listed miner created out of Oxiana and Zinifex during the bull market, came to grief and had to dispose of assets in a rush and out of this was born a Hong Kong-listed entity called Minmetals Metals Group (MMG).

This took a gaggle of the best assets of OZ Minerals while the rump Australian company was left with essentially one live and kicking project (Prominent Hill) to sustain it. MMG went on to buy the Las Bambas copper project in Peru in 2014 and that has become its main focus as other assets in its producing portfolio run down towards the end of their mine lives. Chief amongst these expiring assets was the massive Century Lead/Zinc/Silver Mine in Queensland that shipped its last ore in early 2016. This closure largely removed MMG from the Zinc space ironically just as Zinc started to take off (maybe not uncoincidentally).

Las Bambas

MMG has been otherwise distracted in recent years by the development of its copper mega-mine. This is located in Cotabambas, Apurimac region of Peru. Originally it belonged to Xstrata but the Chinese government made it a condition of giving the OK to the super merger of Glencore and Xstrata that this asset be divested. As the only cashed up buyer with the inclination to stump up the money was a Chinese group, the government had effectively shaken down Glencore to get their hands on this major potential source of supply while lessening Glencore’s ability to dominate the copper space. Two birds killed with one stone.

The Las Bambas mine is a joint venture project between the operator MMG (62.5%), a wholly owned subsidiary of Guoxin International Investment Co. Ltd (22.5%) and CITIC Metal Co. Ltd (15.0%).

In December 2015 Las Bambas achieved its first production of copper concentrate as part of commissioning activities for the mine. First shipment of copper concentrate to customers departed the Port of Matarani in January 2016.

Las Bambas completed construction in the first quarter of 2016, and progressively ramped-up with commercial production achieved at the beginning of July 2016.

In full production Las Bambas will be one of the world’s largest copper mines, with an annual nameplate throughput capacity of 51.1 million tonnes. Las Bambas produced 330,227 tonnes of copper in copper concentrate during 2016, and is expected to produce between 420,000 to 460,000 tonnes of copper in copper concentrate in 2017.

Las Bambas is mined from an open pit with the ore is crushed and transported on a 5.5km overland conveyor to a conventional flotation plant where copper concentrate is produced, then to a molybdenum plant for further processing. The Copper concentrate is then transported by truck and rail to the Port of Matarani in Arequipa where it is shipped to customers worldwide.

The parallels between this epic project and that of Metates are poignant. Indeed the slurry line at Metates makes La Bambas’s conveyor pale into insignificance. In any case the addition of Metates to the MMG stable would fill out its pipeline and make it a major player again in the Zinc space.


With everyone having seen Metates for so long as only of interest to a gold producer it comes as somewhat of a shock to try and contemplate another type of buyer. We have been waiting for Godot (i.e. Goldcorp) for so long that there is the danger that we do not recognize a potential buyer when it comes along. While Goldcorp might look like the obvious buyer MMG looks like the synergistic acquirer for this asset to regain its seat at Zinc’s “top table” with the likes of Glencore.