Mineral & Financial Investments Ltd (LON:MAFL) shares kicked to a two-year high on Tuesday afternoon after an initial study indicated that the Lagoa Salgada project in Portugal could form the basis of a “low cost, high-margin”. 

A maiden preliminary economic assessment (PEA) has been carried out by M&FI’s 75%-owned subsidiary Redcorp Empreedimentos Mineiros and Canada-listed Ascendant Resources Inc (TSE:ASND).

READ: Mineral and Financial sees sharp uplift in net asset value

The PEA suggested that an initial capital expenditure of US$162.7mln could develop a mine in the North Zone of Lagoa Salgada, with a nine-year life at 2,700 tons per day. 

Assuming annual production of 12.5kt of zinc, 13.7kt of lead, 1.1mln oz of silver and 13k oz of gold, plus some copper and other metals, this mine would have a pre-tax net present value of US$137mln and a 37% internal rate of return

Average annual underlying profit (EBITDA) of US$54.2mln would see a four-year payback period to cover the initial capex.

“Over the short period that we have partnered with Ascendant they have advanced the Lagoa Salgada project, we have demonstrated a long-life mine with a modest initial capital and very low operating costs while also having a rapid timeline to production,” said MF&I chairman Jacques Vaillancourt. 

“This study outlines a low cost, high-margin mining operation which the company intends to improve through continued resource growth and ore quality expected at the project.”

He said the company expects there are “many further opportunities” in the project to continue building value and expects Lagoa Salgada to “increasingly become a major focus and priority for Ascendant over the coming years”. 

Next steps

The PEA provides an initial economic assessment in the north zone of the project only, with plans underway to carry out additional exploration work in this zone this year, with the central and south zones “highly prospective” for future resource growth but with very limited drilling having been performed. 

Vaillancourt said these other zones “offer near-term growth potential with additional exploration work which we view as lower risk”, with “extremely encouraging” targets that remain untested. 

“We expect the strong correlation between gravimetric testing and subsequent high-grade drilling results in the North Zone to continue in these zones. Follow up drilling is intended to support our objective of identifying additional resources to support future studies.”

Ascendant, which owns the other 25% of Redcorp, has funded the initial work on the PEA as part of an earn-in agreement with M&FI. The PEA had initially been anticipated by October 2019.

The earn-in arrangements allow Ascendant to acquire up to 80% ownership of Redcorp – by spending US$9mln on the Lagoa Salgada project plus a total of US$6mln of payments to M&FL.

A third payment of $500,000 last week means US$1.5mln has so far been received by the London-listed natural resources investment company.

M&FI shares shot up 27% to 14p on the news, before settling at 12p, up 10%.