Consolidated Zinc’s (ASX:CZL) share price down 30pc as Ganti Court case unfolds

• Consolidated Zinc (CZL) has updated the market on the Ganti Court case and its quarterly report
• Earlier this month, the company said it had been taken to Court by its ex-Mexican contractor, Ganti
• Last Friday, Ganti representatives arrived at CZL’s office, seizing control of financial records and physical inventory
• However, the company has been advised that these actions were not allowed
• December quarter operating costs were higher than the September quarter due to Ganti’s contract termination and the closure over the Christmas period
• CZL is down 30 per cent on the market this morning, trading at 0.7¢ per share

Consolidated Zinc (CZL) has updated the market on the Ganti Court case and its quarterly report.

In early December, CZL terminated the contract with Ganti due to underperforming and overcharging at its Plomosas Project in Chihuahua City.

The company’s 100 per cent owned Mexican subsidiary, Minera Latin American Zinc (MLAZ), owns the project.

In mid-January the company said it had been taken to Court by Mexican contractor, Caminos y Construcciones Ganti (Ganti).

Rather than following what is on the contract for conflict resolution, Ganti submitted legal proceedings in the Federal District Court of Mexico against MLAZ, without the company being advised or able to make representation to the Court.

CZL and MLAZ have disputed cost claims submitted by Ganti which are not in accordance with the contract.

Ganti’s submission to the Court claimed its final outstanding costs to be approximately $1.8 million (Mexican Peso $23.6 million).

MLAZ has now lodged its defence to the Ganti claim and presented counterclaims totalling Mexican Peso (MX) $89.15 million (AUD$7 million). This sum includes a loss of income of MX$72.35 million (AUD$6 million) and physical damage of MX$16.8 million (AUD$1 million).

MLAZ claims Ganti of sabotaging the equipment, failing to meet their environmental requirements, sabotage to the mine and failure to meet their obligations under the contract resulting in significant loss of profits.

The company was presented with the option of paying a bond to the Court or allowing the appointment of a finance professional to review MLAZ’s financial performance. CZL has chosen to appoint a financial professional.

Last Friday, Ganti representatives arrived at MLAZ office, seizing control of financial records and physical inventory. However, CZL has been advised that these actions were not allowed.

“CZL’s Board has been advised that these actions significantly exceed the actions allowable under the order Ganti received from the Court,” the company stated.

“MLAZ will seek orders from the Court for Ganti to cease their intimidation and excessive actions and to pursue a negotiated settlement,” it added.

The application to the Court will be made on February 4.

December Quarter Report 2019

CZL has also updated the market on its December 2019 quarterly report.

Mining

During the quarter, 9062 tonnes of ore were mined at Plomosas, which was higher than the previous quarter of 7511 tonnes, despite the decision to move to owner-operated mining and close the contract with Ganti.

Ganti was terminated in the last week of November. Plomosas secured a rental underground loader and purchased two new haul trucks to commence owner-operated mining.

“The equipment arrived during early December and was commissioned by the 16th December 2019,” CZL told the market.

“Staffing was built up and operations continued to improve with a near full complement of staff at the end of the quarter,” it added.

Processing

During the quarter 11,712 tonnes of ore were processed at average milled grades of 16.1 per cent zinc, 8.4 per cent lead and 44.5 g/t silver.

The third-party Aldama concentrator was shut down during the Christmas period and maintenance was undertaken on the plant.

Operating Costs

December quarter C1 operating costs was US$1.48 (AUD$2.21) per payable pound of payable zinc, which is higher than the September quarter of US$1.01/Ib (AUD$1.51).

C1 operating costs include prices from mining and processing (labour, power, materials) plus local general and administrative freight, and realisation and selling costs.

This was due to the number of factors such as mining was reduced as it changed to an owner-operator mine. Consequently, the unit cost of ore mining during the quarter was higher due to largely fixed overheads including dewatering, employee and equipment hire costs.

Plant production days was limited to 73 days in 91 days and the operating costs include invoiced amounts from the mining contractor.

CZL is down 30 per cent on the market this morning, trading at 0.7¢ per share at 11:25 am AEDT.