Winston’s Growth Stock Report

Your Source for High Potential Stocks

Issue 08, February 25, 2011

Wildcat Silver (WS, TSXV) Profit Taking Update

It looks like I called the Wildcat spike accurately. After the profit taking alert upon the market close on February 14th the stock spiked again the next day up to 96 cents. We should all be holding free shares now.

The interesting thing about Wildcat is that they’ve changed their tune on how they are projecting themselves in the marketplace.

Back in the summer of 2009, it was all about the manganese and how they were going to be the only U.S. based manganese supplier. Now they are focusing on their silver resources primarily.

The scuttlebutt on the street is that there may be an issue with the mining and milling of the manganese. The silver mining and milling isn’t a problem apparently. Time will tell if that’s truth or fiction but at least we have our investment dollars off the table so we can sit back and see how things unfold.

Here’s what the company’s official position is:

Hardshell contains an indicated mineral resource estimate 36 million ounces of silver and 410,000 tonnes of manganese, plus an inferred resource totaling 85 million ounces of silver and 3.4 million tonnes of manganese.
In 2010, Wildcat updated Hardshell's Preliminary Economic Assessment which continued to demonstrate the project's robust economics.
Hardshell is expected to produce an average of 4.1 million ounces of silver and 233,000 tonnes of manganese annually over its 18 year life.

Wildcat plans to execute a 12,500 ft (3,800 metre) exploration drilling program designed to evaluate high quality potential targets with the objective of expanding the current existing mineral resource of 6.0 million tonnes grading 187.8 grams per tonne silver for a total of 36 million ounces of silver in the indicated category and 46.3 tonnes grading 58.6 grams per tonne silver for a total of 85 million ounces in the inferred category (See attached map). As part of the exploration program, the Company also plans to undertake drilling to provide material for metallurgical studies designed to optimize recoveries, streamline the flow sheet and improve operating costs.

Donner Metals Ltd. (DON, TSXV) Financing Options

I managed to track down Donner’s Chairman, Dave Patterson today for a quick update. My burning question was how Donner is proceeding with their major short-term goal of raising $15 million to earn in with Xstrata by May 31st of this year and then make $1 million payments each month going forward until production starts in 22 months time.

Dave stated off by saying “Well I can tell you that we received a bankable feasibility study for Bracemac-McLeod back in October. We are working on a bankable feasibility study for our PD deposit. They call them bankable feasibility studies because you can take the studies to the bank. Our strategy was to work with a number of banks and to find out the best terms for Donner and make a commitment letter with them.”

That process is not something you do overnight. It’s a long process. They’ve narrowed it down to five banks they really like. One of those banks will be the one that comes up with the financing Donner needs.

With the zinc trading strongly and copper now trading at record prices and given the fact DON will be in full production in 22 months, they are getting a very good response from the banks.

“Our feasibility study was done on a worst case scenario with copper at $2.50 and zinc at 80 cents. Zinc today is around $1.13 and copper is around $4.50.”

“With the higher commodity prices, this allows Donner to come up with some different financing options. One is Volumetric production payments.”

This is a type of structured investment that allows producers to get a piece of their future cash flows today. The investor receives a stated monthly quota – often in raw output, which is then marketed by the VPP buyer – or a specified percentage of the monthly production. A VPP interest is considered a non-operating asset, akin to a royalty-payment system.

“There are a number of companies that are now doing it” said Patterson. You have a non- income, non-taxable event and they will give you a certain sum of cash up front as a pre-production payment against future production.”

“So given that Donner is in production in 22 months, the banker then participates in that production. As the volume comes in, for every pound, they will pay the company a further payment for that final pound. Let’s say copper is at $4.50 right now, if you sold at $3.50, you get $1.75 up front and $1.75 per pound when you sell the copper. They will take a significant proportion of the upside but you don’t have to sell all your production. So this is one option that is not your traditional financing tool. That’s one possibility”

Another possibility is convertible debt.

“Amazingly, once we got the bankable feasibility study, other groups who are not banks started approaching us saying, we will offering you x amount of dollars on this kind of schedule. Such as a convertible debt, with coupon and a conversion feature tied to the current price of the stock.”

And naturally there’s the tried and true, good old fashioned equity raise.

“Of course we have the opportunity to raise straight equity. Again, since we have a bankable feasibility study there’s a number of institutional investors that don’t invest in junior mining companies normally but they are interested in those companies who are near-term producers. And it’s those that Donner is starting to see a lot of in the equity portion raising side.”

So what is the optimal solution?

“I have kind of jumped all over the place but I wanted to give you a feel that we have a quiver and in that quiver we have four or five arrows that would do the job. But we want to do a blend. Every one of the financing options has an upside and a downside.”

“We would like most of the money to come from a senior lender. To me that is the optimal combination; a senior lender, maybe a small portion of the volumetric production payment tied to copper and then some equity.”

You have been quoted that you believe Donner should earn $40 million a year going forward?

“Based on the current price of zinc and copper, based on the feasibility study plugging those numbers in, it’s roughly $40 million dollars. That would be $40 million net to Donner EBIT – revenue less operating expenses.”

END

So there you have it. It seems the financial hurdles that lie ahead have been well thought through and options are in place to make Donner a producing mining company in 22 months time.

Have a good weekend!

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