Banks Circle Donner Metals

Richard (Rick) Mills
Ahead of the Herd

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