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Donner Metals Provides Exposure to $1 Billion Deposit

By Eric Pratt
May, 4th

One of the main reasons investors are attracted to junior mining stocks is the immediate wealth creation. If a company hits a good drill hole of good grade mineralization over a long distance, the stock could jump 50% - 500% in a week, in a good resource market.

Instant, large wealth creation – but high risk. I recently came across a stock that has similar leverage, but at much lower risk. This company has discovered an ore body. It is going to go into production. They have a senior partner who is operating a mill and mining another deposit only a couple miles away.

The deposit is worth over US$1billion. All they have to do is spend $5 million to finish earning in their 49% interest in the deposit. That’s the risk.

For Donner Metals (TSX.V:DON), it’s a case of spending $5 million to get $500 million.

The zinc deposit they have discovered with Xstrata, one of the largest base metal producers in the world, is being fast tracked for production. It’s called Bracemac-MacLeod, and is about 3.6 million tonnes of 11.5% zinc with strong copper and some silver credits.

What has intrigued me about this story is that this deposit can produce cash flow for Donner quickly (in mining terms). Xstrata’s Perseverance mill in Quebec is now mining the Perseverance deposit – but that ore body will be mined out by 2012. They want Bracemac-MacLeod into production by then.

At current price levels, Donner’s Bracemac-MacLeod is worth about $1 billion in gross metal value, (go to http://www.kitco.com/pop_windows/kit... to check out this very cool tool), which nets out to $490 million for Donner.

Donner must still raise $5 million to spend in exploration before earning their 49%. They have a full 2 years (May 2011) to do this, but Xstrata wants Bracemac-Macleod ready for production ASAP.

So for $5 million in equity we can get almost $500 million in value. There is some financing risk. But the technical risk – gone. Geological risk – gone. Environmental risk – gone. Political risk – gone. This deposit is right beside an operating mine.

We investors are in the market for instant wealth creation. As soon as Donner Metals raises its next $5 million, it gives us that on a zinc platter at a much lower risk level than junior mining plays normally have.