IM Medical Limited has entered into an exclusivity agreement with Rox Resources Limited in relation to an offer to acquire Rox’s interest in the Reward zinc-lead joint venture through IMI’s wholly owned subsidiary IMI Zinc Exploration Pty Ltd.
The Reward project is currently owned 49% by Rox and 51% by Teck Australia Pty Ltd, a subsidiary of Teck Resources Limited. Teck has the option to increase its JV interest to 70% by spending A$15 million in total by 31 August 2018. As at 31 March 2016 Teck had spent approximately $13.85 million.
The parties have entered into an exclusivity agreement which allows 30 days for acceptance by Rox of the $14.8 million Offer, comprised of $2 million in cash and the issue of $12.8 million of ordinary shares in IMI. Under the terms of the acquisition, Rox will become the major shareholder in IMI with a shareholding expected to be between 50% and 60% of IMI’s issued capital. IMI, which is currently suspended, intends to seek reinstatement on the ASX on completion of the acquisition.
IMI is also in preliminary discussions in relation to the acquisition of a 100% interest in a separate Lead/Copper deposit from another party. IMI will announce further details as soon as they are confirmed.
The Reward Project
The Reward project includes the Teena zinc-lead deposit where a maiden JORC (2012) Inferred Mineral Resource was recently announced, making it the largest high grade zinc-lead mineral resource announced in Australia for the last 20 years. It ranks seventh all-time amongst zinc-lead deposits in Australia.
The Board believes that the entry into the resource sector through the acquisition of Rox’s interest in the Reward JV is in the interests of IMI shareholders and will prove to be a very positive step forward for the Company. The acquisition of a 49% interest, and ultimate 30% interest, in the Reward project (after Teck completes its earn-in) will be the largest and highest grade zinc-lead resource held by an ASX-listed company in an undeveloped deposit. IMI intends to build a portfolio of zinc and related resource projects over time, in parallel with the future development of the Teena deposit.
The Company proposes to prepare its own resource statement in relation to completion of the Reward Acquisition and re-compliance with the ASX listing rules.
Zinc market tipped to move into deficit
Most industry observers (e.g. CRU, Macquarie, ICBC Standard, Wood Mackenzie) are predicting the zinc market to show a marked improvement over the next few years due to falling supply from mine closures, and steadily growing demand. Unprecedented concentrate deficits are starting to emerge which are predicted to underpin a rapid tightening in supply over the next 12-18 months. A potential 1 million tonne concentrate deficit in 2016 is predicted on the back of a 300 kt deficit in 2015, which will rapidly de-stock the zinc market and provide the foundations for an increase in the zinc price over the next 24 months.
While this tightening raw material market has been predicted for a while, Treatment Charges (TC’s) are dropping as smelters, already low on concentrate after last year’s sizeable deficit, compete with each other for remaining concentrate supply.
It takes time for a supply pipeline from a mine (e.g. Century) to fully de-stock, and this has added confusion to the market. While the Century operation ceased production last August, deliveries of material continued until December as stock in process and material tied up in transit, until it reached smelters in Q1 of 2016, and will only shortly be fully expended.
Prior to the rapid zinc price rise seen in 2006, refined deficits in 2004 – 2005 were in the region of 2.5% of annual consumption (currently ~13 Mtpa). The refined deficits now predicted represent about 4.0% of annual consumption in 2016 and 2017, indicating that there will probably be strong upward pressure again on the zinc price, with a corresponding re-valuation of zinc assets as a result.