Richard (Rick) Mills
Ahead of the Herd
As a general rule, the most successful man in life is the man who has the best information
In July 2010, Xstrata (XTA-L) and Donner Metals (DON-TSX) began construction of a joint venture zinc mine on the Bracemac-McLeod deposit in Quebec. They started without a completed feasibility study.
Since neither company has a reputation for impulsive behaviour, industry observers assumed that the early (unpublished) geological data was positive.
That assumption was confirmed on Sept 3, 2010 with the late release of the feasibility report which revealed a magnified resource base and significant upside to the original economic projections.
According to the International Zinc and Metal Study Group, global zinc consumption is due to rise 740 tonnes (7%) in 2010 while mine production is predicted to rise only 623 tonnes (5.5%).
Zinc is a required ingredient in galvanized steel. Demand is tied closely to the construction industry. While U.S. housing starts are flat, the BRIC (Brazil, Russia, India, China) construction market is growing at an annualised rate of 11%. By 2013 it is forecast to have a value of $610.7 billion.
The Bracemac-McLeod deposit feasibility study highlights measured and indicated resources of 3.39 million tonnes grading 11.31% zinc. Based on the deposit's current reserves, life-of-mine production is estimated at 570,400 tonnes zinc worth about $1.2 billion at today’s spot price of $.98 a pound.
But the Bracemac-McLeod is a Volcanogenic Massive Sulfide (VMS) deposit forged in the earth millions of years ago by a rare hydrothermal event. It contains rich veins of copper (39,000 tonnes), silver (46,000 kgs) and gold (445 kgs), adding about another $340 million in value.
VMS deposits can offer investors a mine-specific metal diversification strategy, which sees amplified gains on a small shift in metal prices.
Total capital costs for the mine are estimated at US$163.7 million.
Xstrata and Donner are trying to identify additional resources across the 4,750-sq.-km Matagami project, they are hoping to keep the Matagami mill busy for the next fifteen years. Two drills are currently active on the property.
Donner Metals has the option to earn a 50 percent participating joint-venture interest in the Matagami project by spending $25 million on exploration and related work before May 31, 2011. They have already spent $24.1 million and have the cash to exercise its option.
In total the Matagami mining camp boasts historical production of 8,600 million lbs. zinc and 853 million lbs. copper.
The Bracemac-McLeod mine is destined to replace Xstrata’s Perseverance zinc mine which is closing in 2012. The new mine will feed Xstrata’s 2,600-tonne-per-day Matagami mill complex.
Donner is currently trading at $.26, with a market cap of $29 million.
With the Bracemac-McLeod deposit going into production and Donner so close to earning a 50 percent interest in the Matagami project I’ve got Donner on my radar screen. Is it on yours?
If not, maybe it should be.
Richard (Rick) Mills
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Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard Mills does not own shares of Donner Metals TSX.V - DON
Donner Minerals is an advertiser on his website aheadoftheherd.com.
Disclosure: no position