Ironbark Zinc gets speculative buy rating from Morgans

Ironbark Zinc Limited (ASX:IBG) has received a speculative buy rating and a target price of 8.8 cents from stockbroker Morgans in its initiation report. Notably, the target price is four times the current Ironbark share price of 2.2 cents. The following is an extract from Morgans’ research report: Citronen – FID anticipated 2021 Ironbark Zinc is evaluating the Citronen zinc-lead project in Greenland. Citronen (IBG 100%) hosts a resource to JORC Code (2012) standards of 70.8Mt @ 5.1% zinc and 0.5% lead, with a maiden Ore Reserve (to JORC Code (2012) of 21.3Mt @ 6.0% zinc and 0.5% lead, hosting 1.3Mt of zinc and 0.1Mt of lead. The mine plan optimisation and production schedule are updated from the 2017 Feasibility Study. The metallurgical review confirms previous work and is refining the potential for improved performance using more recent technology. Our expectation is that what was shown to be a robust +US$500m development will be even more robust, as project design, financing, logistics and operations are optimised. The decision of the US export credit agency EXIM to finance up to US$216m is expected to underpin access to US capital markets and to other strategic partners with the Final Investment Decision (FID) for Citronen projected for Calendar 2021. Project financing is IBG’s major current risk. We initiate coverage with a Speculative Buy and $0.09 target based on risked resource multiple methodology. US government EXIM facility Under the Letter of Intent (LOI), EXIM will finance up to US$216.1m of US content for Citronen, over a loan life of 8.5 years at the official US Commercial Interest Reference Rate (CIRR), currently 1.46%. With a renewable period of 6 months, Ironbark will look to other financiers, export credit agencies (ECAs) and strategic partners for debt funding. Citronen - developing a world class zinc mine The capital cost of the 2017 FS of US$515m will be revised with the optimisation of mining, potentially higher metallurgical recoveries and improved logistics, specifically arctic shipping options. In the ’17 FS a mining and processing rate of 3.3Mtpy of ore produced 200,000tpy of zinc in concentrate at a cash cost of US$.52/lb (plus US$0.14/lb estimated smelter charges), compared with the current US$1.15/lb zinc price, a margin above 40%. Funding risk – share price +ve or -ve? The EXIM facility sets in train the search for the balance of debt and equity funding with the FID anticipated in 2021. In our view, failure to fund the development is the major risk. Risk and valuation Located in the Arctic, base metal mines have been developed and operated successfully, including with arctic shipping conditions. Citronen construction and development will be subject to capital and timing risk, and commissioning and ramp-up risk. Operations will carry the usual risks, with profit subject to commodity price and exchange rate risk. At US3c/lb contained zinc our unrisked valuation of Citronen is A$0.29ps. Our risked valuation equating to our target price is A$0.09ps.