MARKET SCENARIOS

FACTS ABOUT THE COST OF LEAD AND ZINC:

  • Most global Zinc and Lead mines must use underground mining costing on average $120 per metric ton of Ore removed. IMP’s open pit mining cost is approximately $51 per metric ton assuming a 15 stripping ratio.
  • Most global Zinc and Lead mines have average metal content of 5% to 15%. IMP currently is showing an average metal content of approximately 30% Lead and Zinc metal.
  • Large majority of global Zinc and Lead mines would not survive a 70% drop in prices from current February 2018 levels, and many would have issues with a 40% drop in prices. IMP has a unique deposit and would comfortably maintain stable cash flow even under apocalyptic scenarios.

SCENARIO 1: IMP MINE IF LME PRICES DROP BY 40% AND 70%

With a price that is 70% below current prices at the level of the lowest prices for both Lead and Zinc in the past 15 years, IMP would retain healthy margins and cashflow. The table below shows that the average margin per metric ton would be in the range of $45 per metric ton for Lead ingot, and $280 per metric ton for Zinc ingot, with an average at a 60/40 Zinc to Lead ratio of metal content, of $186 per metric ton of metal ingot. What is important to note is that our project will remain profitable while most other mines will struggle to remain in business as the second and third scenarios show.

SCENARIO 2: STANDARD UNDERGROUND MINE WITH 30% MC ORE AFTER 40% AND 70% PRICE DROP

In the case of a cost of $120 per metric ton of 30% metal content Ore mined, the cost of mining increases from IMP’s $173 per metric ton of pure metal produced to $523 per metric ton for the underground mine with the same metal content. This is a margin of approximately $350 that IMP will retain that average underground mines do not have as a buffer against price drops. However, as this analysis shows, while underground mines with 30% metal content will be healthy with a 40% price drop, with a 70% price drop, Lead metal is a loser, while Zinc metal barely maintains a positive cash flow. In this case, the average margin per metric ton of Ore would be a loss of $166 per metric ton. Given that these margins would not support he business requirements of the world’s largest miners and smelters, it is assumed that as in the past, when prices go too low, these large players will close operations at one or two of their largest operations in order to constrict supply and force the price backup, and clearly this action would be taken long before the price drops to 30% of the LME, as they would be operating at a loss long before.

SCENARIO 3: STANDARD UNDERGROUND MINE WITH 15% MC ORE AFTER 40% AND 70% PRICE DROP

In this case the cost of mining balloons from IMP’s $173 per metric ton of pure metal produced to $1046 per metric ton. There is a margin of approximately $873 that IMP will retain that average underground mines do not have as a buffer against price drops. But that is not all. Due to the reduced metal content, the cost of Concentrating doubles from $113 per metric ton to $226., adding an additional $113 per metric ton to the margin that IMP enjoys as compared to the “average” Ore mined globally. Additionally, the lower capital costs for building a plant that need handle far less Ore crushing and milling than the average Lead and Zinc mine, and the reduced cost of overhead due to less overburden replacement during reclamation, and lower corporate overhead expenses (which are usually a percentage of the cost of mining). The result is that the average mine would be losing an average of $024 per metric ton of metal ingot if the price dropped 70%, and it would be earning a profit of only $36 per metric ton of metal ingot if the price drop were 40%. This compared to IMP’s profits which remain positive if the price drop is 70%, at $186 per metric ton, and $1,145 if the price drop is only 40%.