Winston?s Growth Stock Report

Your Source for High Potential Stocks

Issue 27 July 13th, 2011

Donner Metals (DON, TSXV)

Sandstrom Provides US $25 M Financing

Donner shares perked up today based on the much awaited news on howthey would be financing their 35% share of the Bracemac-McLeod mineconstruction costs. With production set to start in early 2013, DON hasbeen working on finalizing a financial arrangement to pay Xstrata $15million of DON?s portion of the mine construction costs to May 31st,2011 plus estimated monthly payments of $1 million until productionstarts.

After considering several financing options, Donner has chosen aMetals Purchase Agreement with Sandstorm Metals and Energy Ltd. (SND,TSXV).

The terms of the agreement calls for Donner to receive an upfront deposit of US$17.75 million on or before July 18th, 2011. A second deposit of $5 million is expected on or before June 30th,2012 subject to conditions (see below). Additionally, Sandstrom issubscribing for 6,200,000 shares at
.35 cents (a 25% premium to themarket) for proceeds of an additional CDN $2.25 million.

Donner currently has $7.5 million in the bank. In a few more daysthey will have another $20 million plus the expected $5 million in abouta year.

The $15 M payment to Xstrata is due on July 21st andincludes cash calls for June and July 2011. This will leave them with$12.5 M or about 10 ? 12 months of cash calls given their share of themine construction is about $1 M per month.

The Bracemac McLeod Feasibility Study estimates $41 million will berequired for pre-production capital attributable to Donner. So withtheir $ 7.5 M in the bank and the $20 M from financing, there is a $13.5M shortfall. Donner will be required to raise a minimum of $10 millionbetween now and June 2012 which will result in Sandstorm releasing theirfinal $5 million payment.

The next financing shouldn?t be a problem now that Sandstrom hasstepped up with their financing package. I would also expect the nextfinancing to be done somewhere north of 35 cents.

Sandstorm?s management team have a successful track record in theroyalty and metal streaming business dating back to 2005 with SilverWheaton which they helped build into the largest metal streaming companyin the world. The company looks for advanced stage projects wherebythey make upfront payments for the right to purchase commodities at afixed price for a percentage of a project?s production for the life ofthe project.

The Metal Purchase Agreement provides for the sale of copper, goldand silver from Donner to Sandstorm equal to 17.5% of the production ofthese metals. At current metal prices Donner will receive US
.80 perpound of delivered copper and once Sandstorm has purchased 14.8 millionpounds of copper, Donner will receive US$1.05 per pound.

For the gold and silver sales, Donner will receive for gold or goldequivalent ounces the lesser of US$350 per ounce and the prevailing spotprice for gold.

Donner has the option for 24 months to purchase back from Sandstormhalf of the metal to be sold to Sandstorm for US$17.5 million. Donnerhas also agreed to issue to Sandstorm US $1.4 million worth of commonshares on the date of the second purchase deposit.

As for the primary revenue generation of the mine, Donner will retain 100% of their portion of the zinc sales.

At full operating capacity, production is estimated to be 175 Mpounds of zinc, 20 M pounds of copper over a minimum 4 year mine life.

Additional production potential is projected to come from McLeod Deepand McLeod West which are not part of the current mine plan. Goingforward, underground definition drilling followed by a feasibility studyis the works for these zones.

To the west of the Bracemac-McLeod mine is the PD1 open pit resourcewhich is currently undergoing a feasibility study to be completed laterthis year. With this ore just 25 to 100 meters from the surface, miningcould start rather quickly. This could add another 700 tonnes per day(t/d) of ore to the mill which would help to reach its capacity of 2950t/d. The Bracemac-McLeod mine is estimated to produce 2300 t/d over thefirst two years before ramping up to 2800 t/d.

Conclusion

I like this deal as it presents the least dilutive means of financingfor DON shareholders and will get the company over the big financialhump they were facing.

It looks as though the mine is on pace to start production in early2013, just as ore is running out for the Perseverance mill in Decemberof 2012.

It should be noted that Bracemac-McLeod mine is within one of fivejoint venture areas. Ongoing exploration could add an additional 6-8years of ore feed.

I see today?s news as being the successful completion of the biggest hurdle before production starts.