Tinka Resources (TSXV: TK, OTCQB: TKRFF) is an exploration company that could potentially hold one of the world’s largest undeveloped zinc deposits. Indeed, the Ayawilca deposit contains up to 3B pounds of the zinc indicated category and 5.7B pounds of zinc in the inferred category and will definitely be a key player in the growing zinc demand for a greener future. Stay tuned for this undervalued stock that could provide an astonishing long-term return on investments. 

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Company Overview

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The Ayawilca Zinc-Silver project, in the Pasco region of central Peru, is the company's flagship asset. It is situated 200 kilometers northeast of Lima. Ayawilca is a carbonate replacement deposit, which is a significant type of silver, zinc, and lead economic mineralization in central Peru. By November 2021, the company had drilled 88,000 meters at the property, which was where Tinka discovered the Ayawilca Zinc Zone in 2012. Today, Ayawilca is among the largest zinc-silver resources owned by a junior company. Ayawilca has the potential to rank among the Top-10 producers of zinc worldwide, according to a Preliminary Economic Assessment dated 14 October 2021.

Tinka owns 460 km2 of contiguous mining concessions in central Peru with excellent geological potential for additional discoveries, good access to water, and good access to power. The Cerro de Pasco mine, which produces copper, zinc, lead, and silver, is 40 kilometers to the northwest of the Ayawilca project, which is situated 100 kilometers south of the massive Antamina mine (copper-zinc). The project is traversed by a 220 KV power line.

A PEA full of promises

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The PEA for the Ayawilca Zinc Zone is predicated on an underground mine operating for 14.4 years at an average daily mining rate of 8,500 tonnes. Production is anticipated to start in 2025 after 18 months of construction and commissioning for the PEA's purposes. This initial mine plan is based on mining 43.5 million tonnes over the life of the mine ("LOM") at a grade of 5.56% zinc, 14.5 g/t silver, and 0.20% lead. With a post-tax NPV8% of about US$785 million, the PEA shows the project to be extremely profitable at current spot zinc prices (around US$1.50 per pound).  The PEA has excellent economics, with a post-tax NPV8% of US$433 million at its base case zinc price of US$1.20 per pound. The performance of the company's ESG efforts is a top priority. Tinka is emphasizing its strong commitment to use low impact and environmentally sound solutions for tailings disposal by using dry stack tailings, 100% use of waste rock, and 40% of tailings as backfill.

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The company recently shared exceptional updates about the property as Hole A22-202 has returned the best drill intercept ever made at the Ayawilca project: 38.9 meters grading 20.0% zinc, including an ultra high-grade interval of 10.4 meters grading 42.0% zinc. The 2022-2023 drill program has now been expanded due to the excellent results to date, with about half of the drill holes (13) now reported of the estimated 30 holes to be completed at both South Ayawilca and West Ayawilca.

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Share Structure/ Financials

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If you are looking for an astonishing share structure, with solid investors owning a large stake leaving a small float, stop right here. Retail only have access to 27% of the share structure, and the rest is divided between institutions and insiders. Institutions gather Buenaventura (19%), Sentient Equity Partners (19%), Nexa Resources (18%), and other institutions (14%). Insiders hold a smaller stake, as it stands for 3%. 

The two main stake ownership occurred when Nexa and Buenaventura subscribed to a private placement in May 2022. 

Buenaventura purchased 9,770,669 shares, while Nexa purchased 40,792,541 common shares. The Private Placement generated gross proceeds of C$11.12 million in total. There were no commissions or finder's fees associated with the Private Placement.

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The company issued 391M shares, 9M options, and no warrants. Regarding the balance sheet, the company is well funded with $9.6M in cash and cash equivalents, $8.2M in restricted cash and even better, Tinka doesn’t have any debt and low expenses ($2.2M for the year ending September 30, 2022). About the stock price, it trades around $0.17 (February 2, 2023). The stock remained relatively steady over the last 52 weeks, with its value variating from $0.12 to $0.22. A positive aspect about upside is Yahoo Finance gives a 1-year target of $1.00, brining a 488% upside considering the current price. 

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“Tinka is thrilled to welcome Nexa as a strategic investor in the Company, joining Buenaventura and Sentient Equity Partners as our major shareholders.  Nexa’s strategic investment in Tinka, and the co-investment by Buenaventura, is a strong endorsement of our globally significant Ayawilca zinc project and of Peru as an important long-term mining and investment jurisdiction.  Nexa is a dominant player in the zinc business in Latin America, owning three mines and a smelting operation in central Peru in proximity to Ayawilca.  The Private Placement investment highlights the potential synergies of a successful mine development at Ayawilca for all parties concerned. "

Dr. Graham Carman, President and CEO of Tinka

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Bottom Line

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Tinka Resources (TSXV: TK, OTCQB: TKRFF)’s flagship project offers significant upside. The Ayawilca deposit contains 3B pounds zinc (indicated), 5.7B pounds zinc (inferred), and is located on a prolific mining belt. The company is backed by Nexa and Buenaventura and has a strong support from the local communities. The future is bright for the company, and we could potentially imagine a buy-out before it starts producing. 

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