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Freed by convention in Tasmania

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One of the thorniest challenges of commercialising a new minerals processing technology is that progress is rarely as predictable, rapid or cheap as bean counters would like.

The ever-present vexation is the spectre of a cash crunch.

A way to alleviate the pressure is to generate early cash inflow wherever possible.

ASX-listed fledgling zinc producer Intec Ltd is now taking this approach at its Hellyer operation in Tasmania.

At Hellyer, Intec has chosen a conventional route to initial zinc production while undertaking work to integrate its patented chloride-based zinc recovery process.

The company’s suite of processes creates no liquid effluents and involves recycling of reagents.

Process residues are largely free of mobile base metals.

When the hydrometallurgical innovator acquired Hellyer tenements in early 2004, the original intention was to eventually apply the company’s proprietary processing technology to the entire 11-million-tonne polymetallic tailings resource.

The Hellyer acquisition was Intec’s response to the dilemma – encountered by many developers of new metallurgical processes – of whether to licence out its technology to third parties or instead take the do-it-yourself approach.

“Generating royalties [via licensing] is all well and good, but the preferred way to go is to have a project interest,” Intec chief financial officer Kieran Rodgers told Australian Mining.

“You can talk endlessly to people about your technology, but you’ve got so much more credibility if you can point to a project you’re using it on.”

About two-and-a-half years after the Hellyer purchase, the beginning of what became a dramatic, sustained upswing in zinc prices persuaded Intec to take a shot at getting to market earlier.

According to figures supplied by the Australian Bureau of Agricultural and Resource Economics (ABARE), after the zinc price bottomed at an average of US$0.35 per pound in 2002, it rose to US$0.63 in 2005. Surviving zinc producers then enjoyed an average price of US$1.21 in the first five months of 2006.

In April that year, after discussions with smelter end-customers and commodity trading houses, Intec told investors it was convinced of the merits of a conventional tailings retreatment phase at Hellyer.

The non-premium zinc concentrate would be “readily saleable on financially attractive terms” given prevailing zinc market fundamentals.

So expenditure began in May towards establishing the retreatment phase, which was dubbed the Hellyer bulk zinc concentrate project. By early December the commercial production of concentrate grading 41% zinc, 10% lead and 200 grams per tonne silver had begun.

As it turned out, spot zinc prices had climbed through US$2 per pound near the end of 2006, reaching some of their highest ever levels in nominal dollar terms.

At the time of writing, Intec’s first conventional concentrate shipment (5000 tonnes) was expected to leave the Tasmanian port city of Burnie in January – destined for Chinese shores under offtake agreements with smelters. Around 50,000 out of 65,000 tonnes of annual concentrate production are currently covered by contracts, Rodgers said.

To help speed the commencement of tailings retreatment, Intec brought in private mining group Polymetals Mining Services as joint venture partner.

Polymetals sole funded around $6 million in start-up costs to earn a 50% interest in the retreatment project.

Once the milestone of either six million tonnes of tailings or four years’ passage is reached, Intec can opt to buy back its partner’s interest for one dollar.

The JV partners will share in the retreatment project’s annual earnings before interest, tax, depreciation and amortisation (EBITDA), which in December were forecast to be $70.5 million.

“The zinc concentrate project is a building block to move forward to other production, but also to generate cash flow at a time of historically high zinc prices,” Rodgers said.

“Historically, Intec has raised equity from the public markets or private markets to develop its technology. It’s a difficult position to be in, particularly as a publicly-listed company.”

When Intec listed on the Australian Stock Exchange in 2002 it was “very hard” for the market to evaluate the company because its asset base largely consisted of non-commercialised intellectual property, he said. However, the market “finds it easier now” because it could see cash flow on the horizon.

Another challenge has been to continue raising equity to fund technology development, he said. Overall, expenditure to date on this work has totalled more than $50 million.

“The technology development goes back a long way, back to 1992. It’s been a long-term project, but certainly we’re confident we will get that money back.

“Even generating cash flow next year [2007] from the conventional project actually goes some way to paying that back, because first of all it impacts on your share price – and therefore impacts on your ability to do things.”

The figure forecast for the concentrate project’s EBITDA was based on annual concentrate production of 65,000 tonnes from 1.5 million tonnes of tailings, and on metal prices and currency exchange rates prevailing at the time.

Rodgers says the zinc price outlook remains good for the short term.

“The supply-side response is just not kicking in yet ... [It] hasn’t been able to match the demand,” he said.

Official economic analyses agree with his view. “A commodities forecast released in December by ABARE puts the average 2007 zinc price at around US$1.92 per pound or US$4200 per tonne.

“ABARE analyst Rohan Kendall expected zinc consumption would exceed production in 2007, with zinc stocks falling to 10 days’ worth of consumption by the end of the year.

“In a normal zinc price environment [historically], the concentrate product from Hellyer probably wouldn’t be saleable ... But at the moment there is a strong demand for this product,” Rodgers said.

“In this price environment you want to get your zinc units to market as quickly as possible.”

Intec has a few options for delivering additional zinc to market relatively quickly. For example, once optimisation of the Hellyer mill is completed for tailings throughput of 1.5 million tonnes a year, the JV partners will consider increasing it by a third to 2 million tonnes a year. Intec also owns a 20,500-tonne stockpile of pelletised electric arc furnace dust, which is housed in Melbourne and grades around 27% zinc.

Intec is currently trialling blending of the dust (which is first upgraded by magnetically removing some of its contained iron) with Hellyer’s zinc concentrate.

If successful, the blending process may prove to be current best practice in converting the furnace dust — by itself a hazardous waste — into a non-hazardous zinc-rich asset that is relatively easy to export.

The company has an arrangement in place to source continuing supplies of furnace dust from steel producer Smorgon Steel. The possibility of toll treating regional third-party ores at the Hellyer mill is always present as well. This option grew a little closer in late December when the JV signed a non-binding letter of intent with junior company Bass Metals.

Trial processing of the latter’s Que River ore is set to begin in the first quarter of calendar 2007.

As part of the second and third development phases at Hellyer, Intec will this year be reconfiguring its Burnie demonstration processing plant to trial the innovative co-treatment of electric arc furnace dust and material from the company’s 460,000 tonnes of zinc-rich Zeehan slag dumps.

The dumps were acquired in October and are currently located 80 km from Hellyer. The trial is expected to demonstrate the feasibility of commercial production of zinc intermediates at an annualised rate of 10,000 tonnes of zinc units.

Further out, Intec will put its patented processing technology into use at Hellyer to produce zinc metal, using a system based on the process flowsheet trialled last year at the Burnie demonstration plant. Rodgers said Intec will likely seek to begin constructing an on-site processing plant at Hellyer in 2008, assuming all goes well with the co-treatment trial and subsequent financing arrangements. He said details such as the debt-to-equity mix would be determined once a full feasibility study was completed.

“But we will be generating cash flow, so we’ll become a much more financeable company.”

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