Donner Metals Is In A Win-Win Situation Now That Xstrata Zinc Is Accelerating Feasibility Work On Bracemac–McLeod
By Charles Wyatt. 23/7/09 www.minesite.com
From the minute the joint venture between Donner Metals and Xstrata Zinc Canada made its two discoveries – first Bracemac and then McLeod - on the Matagami project in Quebec, it was a fair bet that the combined Bracemac-McLeod zinc deposit would be taken to production. The reason is simple enough. This deposit is situated only six kilometres south east of Xstrata’s 2,600 tonnes per day Matagami Mill Complex in the world class Matagami Mining Camp in Quebec. This prolific mining district hosts 18 known volcanic massive sulphide deposits, including 10 past producers of varying sizes, and including amongst those the giant Matagami Lake deposit. This boasted resources of 25.64 million tonnes of 8.2% zinc, 0.56% copper, 20.91 grammes per tonne silver and 0.41 grammes per tonne gold and was mined from 1963 to 1988 after discovery in 1957. In fact it is estimated that the area has produced of 8,600 million pounds of zinc and 853 million pounds of copper in its time - an amount which would make a hefty dent in the metal requirements of China even now.
The Matagami area is well serviced by established infrastructure. There’s the town of Matagami for one thing. There’s power, a permitted tailings facility, railway, airport, and well-developed road and highway networks. Xstrata Zinc is currently producing from its low-cost and wholly-owned Perseverance deposit which feeds its refurbished Mill Complex. Thus any future development under the Donner-Xstrata agreement will benefit from the established infrastructure and facilities - zinc concentrates produced at Matagami are refined at the Noranda Income Fund zinc refinery in Valleyfield, Quebec, and copper concentrates are smelted at Xstrata's Horne smelter in Rouyn-Noranda, and refined at Xstrata's Canadian Copper Refinery in Montreal.
It is one of those bits of luck that are vital in mining, as Donner’s chairman Dave Patterson admits, that the Perseverance deposit will be running low on ore in 2012/13, just when an underground mine at Bracemac-McLeod could be in the last stages of development. No wonder, then, that Xstrata Canada has told Dave that it wants to advance the project immediately to the feasibility stage. A positive scoping study has just been finished, and it clearly ticked the boxes as far as metallurgy is concerned, so minimal changes would have to take place at the Mill.
Under the Matagami Option and Joint Venture Agreement Donner can earn a 50 per cent interest in each of five separately designated project areas, with Xstrata Zinc having five separate rights to earn-back a 15 per cent interest in each project area by incurring up to C$20 million on a bankable feasibility study. Xstrata Zinc also has the right to conduct an "Accelerated Feasibility Study" prior to Donner completing its earn-in requirements. It is this right that is being exercised, so when the feasibility study is completed and Donner has completed its earn-in requirements, Xstrata Zinc will exercise its back-in right in the South Flank area of the Matagami Property which will then become a 65 per cent Xstrata, 35 per cent Donner joint venture. The remaining four project areas will remain 50:50 joint ventures between the two companies, subject to Xstrata Zinc's remaining back-in rights.
Indicated resources at Bracemac-McLeod are currently calculated at 3,623,000 tonnes grading 11.52% zinc, 1.60% copper, 31.6 grammes per tonne silver and 0.49 grammes per tonne gold. In addition there are inferred resources of 512,000 tonnes grading 1.28% zinc, 1.85% copper, 12.17 grammes per tonne silver and 0.18 grammes per tonne gold. It’s still smaller than Perseverance, but mineralisation is open in a number of areas around these resources and the grades tend to be higher. Certainly, the copper grade is almost double that previously encountered in the camp, so credits from this, and indeed from the gold too, should boost the profitability of the project. A whole lot more will be known once the feasibility study has been completed by the Xstrata Zinc development team. It was they who were responsible for the development of the Perseverance mine so they understand the geology and metallurgy of the area, which should make the job that much simpler. In the meantime exploration is continuing around Bracemac-McLeod, and Dave Patterson seems confident that the resource will be significantly bigger by the time the feasibility is completed.
Just before Xstrata announced its feasibility decision Donner Metals completed a private placement to raise just under C$2 million. The share price has performed sturdily in the first half of this year, and investors who hold the company’s warrants at C25 cents with two years to run are nearly in the money too. This placement will take the company further down the road to retaining its 35 per cent interest in Bracemac-McLeod, as it has already spent C$17 million on the earn-in and has until 2011 to spend another C$8 million. Dave Patterson confirms that his company has C$3.8 million in the till following the placing, so no more should be needed until well into next year.
By that time the feasibility should be finished, and this will enable the market to put a value on Donner’s share of Bracemac-McLoed. That in turn should ensure that the shares are significantly higher. It looks like a win-win situation at the moment, and Dave Patterson cannot keep a note of jubilation out of his voice, as it has been a long, hard slog. He will be in London in September to give more details at our Minesite Forum on 17 September.
