Donner Metals Appears Confident

Donner Metals Appears Confident That Xstrata’s Feasibility Study At Bracemac-McLeod Will Prove Positive

By Charles Wyatt

It is a matter of fine judgement for the board of directors of a junior mining company with a major project on its hands, as to when it brings in a major partner to share the financial and geological risk. Bring one in too early and the interest of the junior company as well as its influence is eroded steadily as the project is funded through feasibility into development, and on to production. Bring one in too late and it will virtually grab the whole of the project in the knowledge that the junior faces an almost impossible task in taking it much further. Big projects cost big money. Big companies know this and they are not charities, so beware.

Dave Patterson, executive chairman of Donner Metals, did a bit of lateral thinking when he got his small company involved in the huge Matagami project, which sits astride the Abitibi greenstone belt in Central Quebec. With hindsight he did the deal back-to-front as he took an option from Falconbridge back in 2006 to earn a 50 per cent participating joint venture interest in the project. Under the terms of that deal Donner will spend a total of C$25 million on exploration by May 31st 2011. Upon earn-in by Donner, five separate joint ventures will be formed, covering the property and the area of interest. In each of the five joint venture areas Xstrata Zinc, which acquired Falconbridge a couple of years ago, has the option to earn-back a 15 per cent interest by spending up to C$20 million on a bankable feasibility study. Xstrata Zinc has already triggered its back-in right on Bracemac-McLeod by electing to conduct a bankable feasibility study there. This deposit was discovered by Donner only a year after it acquired the option. It has since discovered three others.

The Bracemac-McLeod deposit is the most advanced, though, currently boasting an NI 43-101 indicated resource of 3.62 million tonnes grading 11.52% zinc, 1.60% copper, 31.55grammes per tonne silver and 0.49 grammes per tonne gold located just six kilometres from Xstrata’s mill complex. This mill complex at the Perseverance mine is the lynchpin of this deal, as it means that there will never be a need to develop a new plant with the huge funding that entails. The Perseverance deposit currently supplies 2,600 tonnes of ore per day to the mill. The resulting zinc concentrate is then refined at the Noranda Income Fund zinc refinery at Valleyfield in Quebec while the copper concentrates are smelted at Xstrata’s Horne smelter before going to its Canadian Copper refinery in Montreal for refining. Established infrastructure at Matagami includes power, a permitted tailings facility, railway, airport and roads. Nothing wanting on that score, but what Xstrata does want is a continuing source of feed to its mill, as it is due to run out in 2013.

Perseverance is not included in the Donner Metals deal, but all the rest of the Matagami project is. It covers 644 square miles and contains 18 known VMS deposits, including the giant Matagami Lake deposit which at one time contained 25.64 million tonnes of ore grading 8.2% zinc, 0.56% copper, 20.91 grammes per tonne silver and 0.41 grammes per tonne gold. It was mined from 1963 to 1988 and the whole area has produced 8,600 pounds of zinc and 853 million pounds of copper in its time. The future for Donner therefore does not lie solely with Bracemac- McLeod. There are plenty more targets to work on.

So, close co-operation with Xstrata remains in place and the combined exploration and development team has a reputation for excellence in the mining business, with extensive experience finding, evaluating, developing and producing Matagami deposits. A pipeline of drill-ready targets has been identified which will support exploration activities well into the future.

The immediate target for Dave Patterson, however, is to make sure that Donner has enough funds to complete its option next year. A non-brokered private placement in February brought in C$2.4 million. This followed a placing last November of C$3.2 million, so Donner is up to speed as far as that is concerned. On the telephone from Toronto Dave says the company still has C$4 million in the kitty, and will be carrying out plenty more drilling in six weeks time. The current feasibility study will determine whether Bracemac-McLeod can be mined economically to supply Xstrata’s Matagami mill complex with enough ore to last 15 years. The result should be known next month, but the speed with which Xstrata went ahead with this study indicates that there is little doubt about the outcome. The latest news from Xstrata is that the definition drilling programme at Bracemac -McLeod has been completed.

The next crucial date for Donner is the feasibility study next month, and Dave Patterson sounds very relaxed about it. The next big date after that is twelve months later, by which time Donner should have spent C$25 million on exploration and be able to exercise its option to take a 35 per cent stake in the Bracemac-McLeod deposit, which should by then be undergoing development if the feasibility has come up trumps as expected. The cost of developing Bracemac -McLeod will be disclosed in the feasibility study and Donner will have to find its share if it is to retain its 35 per cent interest, but will then be able to look forward to initial cash flow within a reasonably short time. Exciting times ahead, starting next month.