Banks Circle Donner Metals

Richard (Rick) Mills
Ahead of the Herd

http://aheadoftheherd.com/Newsletter/2011/DonnerApr2_2011.htm

As a general rule, the most successful man in life is the man who has the best information

Donner Metals Ltd. (DON-TSX-V) is currently constructing a joint venture zinc mine with Xstrata Zinc Canada (XTA-L) on the Bracemac-McLeod deposit in Québec, while exploring a number of different financing scenarios.

Donner needs to raise $15 million to earn in with Xstrata by May 31st, 2011 and then pay $1 million a month until production starts in 22 months’ time.

Rumour on the street is that Donner Chairman and Director David Patterson is entertaining offers from a number of European merchant banks eager to invest in the building of a mine with an unusually short timeline to repayment.

The kicker here is that that Xstrata has an existing 2,600-tonne-per-day mill complex right next door, which is awaiting the ore feed.

The macro fundamentals favour the timing of Donner’s move from explorer to producer.

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.

Donner received a bankable feasibility study for Bracemac-McLeod back in September 2010. With rising spot metal prices, the bottom line has improved dramatically since then.

“Our feasibility study was done on a worse-case-scenario with copper at $2.50 and zinc at 80 cents,” confirms Patterson, “both copper and zinc are now in a long term upward trend.”

In total the Matagami mining camp boasts historical production of 8,600 million lbs. zinc and 853 million lbs. copper

At full production in Q1 2013, the Bracemac-McLeod mine will produce 80,000 tonnes of zinc and 10,000 tonnes of copper annually. The total capital cost for the mine is C$158 million, of which Xstrata’s share will be C$104 million.

“The current prices of zinc and copper make our sensitivity to metals prices all the more appealing moving forward.” says Patterson. Based on the current price of zinc and copper, Donner could anticipate roughly $40 million dollars per annum net to Donner EBIT – revenue less operating expenses. That is significant for a small cap junior, especially since the timeline for production is a mere 21 months from today.

Given that Donner has a current market cap of $33 million, it’s no surprise that the multiple European banks are eyeballing this financing. With such a short timeframe and attractive metals market, Donner is positioned to choose which financing option works best for the company and its shareholders.

Is Donner Metals TSX.V – DON, and its joint venture zinc mine with Xstrata on the Bracemac-McLeod deposit in Québec, on your radar screen?

If not maybe it should be.

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

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Richard is host of www.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, FNArena and Financial Sense.

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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 Metals TSX.V - DON is an advertiser on Richard’s website www.aheadoftheherd.com.