Patersons considers the stock to be highly leveraged to the Citronen Fjord Zinc project which it says is likely to be funded in the near-term.
Adding interest, Ironbark has an undrawn US$50 million funding facility provided by Glencore to expand its project base through acquisition.
The following is an extract from the report.
We are initiating coverage of Ironbark Zinc Limited (IBG) with a Speculative Buy rating and $0.35/sh price target.
IBG is focussed on developing its fully permitted Citronen Fjord Zinc project (100%) (Citronen) located in northern Greenland.
The project is a globally significant zinc project with a contemplated 14-year mine life and peak production rate of c.200,000tpa of zinc metal.
In addition, the deposit has outstanding exploration upside.
Based on our price forecasts, we estimate the project generates >US$150mpa in freecash generation with a payback period of c.2.5 years.
We believe that the current supportive zinc pricing environment should allow the project to be financed and move towards construction potentially in 2018.
IBG has a supportive shareholder base with Nyrstar and Glencore on the register.
In addition, IBG has the support of China Non-Ferrous (NFC) who are looking to potentially fund the project.
Significant Zinc Project with Strong Upside
We see the Citronen Project as having the potential to significantly exceed the contemplated 14-year mine life.
Citronen is a SEDEX style deposit and these tend to be very large whilst maintaining excellent grades.
IBG has published an exploration target of 302-347Mt at 4.4-5% Zn over the 11km of strike of known mineralisation which suggests a potential mine life of over 100 years is possible.
This significantly exceeds the last published Mineral Resource of 70.8Mt at 5.7% Zn+Pb.
Funding the Key for Development
We believe the current supportive zinc pricing environment will likely allow Citronen to be funded.
IBG recently signed a MoU with China Non-Ferrous for an engineering procurement and construction (EPC) lump sum, fixed price construction and commissioning contract with associated 70% debt and 20% direct project investment.
In addition, IBG is examining alternative non-Chinese proposals for project funding.
IBG has a supportive shareholder base with Nyrstar and Glencore owning 19% and 9% of the stock respectively.
Treatment charges especially out of China are rapidly reducing as there is increased demand for good quality zinc concentrates (such as Citronen) to blend with lower quality ores.
We have determined a valuation of $0.35/sh.
Our valuation is based on the recent updated feasibility assuming the project is funded 70% debt and 30% equity via a highly dilutive capital raising.