Winston's Growth Stock Report

Your Source for High Potential Stocks

Issue 30, July 14, 2010

Donner Metals (DON, TSXV): Construction of the Bracemac-McLeod Mine is a go!

We had some big news last Friday as Xstrata announced that they will build a mine at the Bracemac-McLeod deposit thus giving Donner shareholders the opportunity to share in 35% of the future production of this mine.

Of the four discoveries made by the Donner-Xstrata exploration team over the last few years, the Bracemac-McLeod deposit is the most advanced with NI 43-101 indicated resources of 3.62 million tonnes grading 11.52% zinc, 1.60% copper, 31.55g/t silver and 0.49g/t gold. The results of the current feasibility study will move these indicated resources to a measured category.

With Xstrata’s Perseverance mine about to run out of ore in 2012 which in turn is feeding their multi-million dollar Matagami mill just six kilometers from Bracemac-McLeod, this is welcome news for Xstrata and Donner shareholders.

Under the joint venture agreement signed with Xstrata, Donner can earn an initial 50% interest in the Matagami Project by selecting claims to be included in five joint venture areas by May 31, 2011 and by spending $25 million in exploration.

To date Donner has spent $24.1 million in exploration and has enough in the bank to easily complete the $900,000 balance over the next nine months. Xstrata has the right to earn back a 15% interest by completing a feasibility study or spending up to $20 million towards a feasibility study within each joint venture area.

In order to participate in the future production of the Bracemac-McLeod mine, Donner will need to raise $55 million over the next year to cover their share of the mine development costs. 25% of this or $13.7 million will come from equity. These funds are likely to be forthcoming from institutions that are currently holding options on Donner stock. The other 41.3 million will come from project debt financing.

There is, however, still a much bigger upside for Donner shareholders within the immediate vicinity of the Bracemac-McLeod deposit. Ongoing Donner–funded exploration drilling has discovered new mineralization at McLeod Deep, Daniel 1 and Bell Channel.

Of particular interest is McLeod Deep, located just under the planned mine about 200 and 450 meters down-dip. At some point I would expect that future resources from the Deep could be added to the Bracemac-McLeod deposit thus extending the life of the mine and future profitability.

On July 12, Donner announced that drilling is continuing to extend the high grade mineralization at the Deep. Zinc, copper, silver and gold-bearing sulphide mineralization has now been intersected in seven drill holes over an area measuring approximately 250 by 250 metres. Mineralization in the McLeod Deep zone is open up-dip towards the McLeod Zone, down-dip and to the northwest.

Conclusion

The announcement that the Bracemac-McLeod deposit will be developed into a producing mine is huge news for a small penny stock exploration company like Donner. Given their joint venture partnership with Xstrata who already have an existing infrastructure in place for milling and refining toward end product usage is even more extraordinary.

However the story doesn’t end there as new exploration is uncovering more potential minable areas which Donner can also participate in going forward.

All in all, this is a dream story come true for any junior miner. The full potential of this company has yet to be realized in practical terms or in the imagination of the investment community. That will change in due course.

Donner is a buy for future growth.