Donner Metals: De-Risked Projectable Cash Flow
October 20, 2011 by Gold Editor
Author: James West
Posted: October 18, 2011
Exploration is a risky game and exploration companies are discounted heavily to reflect that risk.
Gold-in-the-ground, for instance, is valued at about $20 per oz (inferred), $30 per oz (measured and indicated), and $160 per oz (proven and probable). After a mine is built and commercial production starts, metal companies are valued more like conventional manufacturers: cash costs, units sold, price per unit, debt, projectable revenues etc. It’s as though the market won’t believe in the product until it rolls off the assembly line.
Occasionally there is a window of opportunity for investors when a company is about to become a producer – but is still being valued as an explorer. Donner Metals (TSX.V:DON) appears to be one such company.
Donner is a Canadian company partnered with Xstrata Zinc (XTA.L) in the Matagami Mining Camp district in Québec. Since 1963, the area has produced 8.6 billion pounds of zinc and 853 million pounds of copper.
The company is currently trading at .20 – close to the 52-week low – with a market cap of $26 million.
The Bracemac-McLeod combined mine is destined to replace Xstrata’s Perseverance zinc mine, which is closing in 2012.
The new mine will feed Xstrata’s 2,950-tonne-per-day Matagami mill, an existing complex that was recently refurbished for production at the Perseverance mine. Bracemac-McLeod is a Volcanogenic Massive Sulfide (VMS) deposit forged in the earth billions 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 $300 million in value.
VMS deposits offer investors a mine-specific metal diversification strategy, which sees amplified gains on a small shift in metal prices.
Based on the 2010 feasibility study completed by Xstrata and Genivar Engineering, the supply of ore is projected to last an initial 4 years. With 43-101 compliant proven & probable reserves of 606 million pounds zinc, 83 million pounds copper, 1,497,000 ounces silver and 13,090 ounces gold. Upon engineering I feel confident that this extends mine life 2-3 years, with excellent exploration potential immediately surrounding both mining reserves and mineral resources.
Donner continues an exploration drill program elsewhere in the Matagami Mining Camp, in addition to the ongoing feasibility study at the PD1 deposit in the West Camp.