The development of the Bracemac-McLeod zinc project, jointly owned by Donner Metals and Xstrata remains on time and on budget according to all the latest reports. Located in the world class Matagami mining district of Quebec, which has produced 8.6 billion pounds of zinc and 853 million pounds of copper in the past, Bracemac-McLeod is exceptionally large at 4,700 square kilometres, and boasts good transportation infrastructure and power connections.

Not a bad proposition, all told. But it didn’t always look so straightforward. Donner began the adventure as a junior mining company struggling to raise finance to work the deposit up. According to the deal with Xstrata, the Matagami camp is divided into six joint ventures which were originally owned fifty-fifty. After Xstrata completed a feasibility study on the Bracemac-McLeod project its interest increased to 65 per cent, leaving Donner with 35 per cent.

And Donner was keen to maintain that interest. But although the company’s management looked into bank financing, they found that the deals on offer were too onerous. Instead, Sandstorm Gold seemed to offer a more attractive option. Sandstorm was put together to buy royalties and Bracemac-McLeod looked right up its street. And so it was that, following the completion of the feasibility study, David Patterson, chairman of Donner, managed to secure C$25 million for the project through three mechanisms.

The first was the sale of 50 per cent of the copper stream from the mine for money up front and C$0.80 per pound upon delivery. The second was 50 per cent of the precious metals stream, comprising gold and silver. The final mechanism was a private placement at C$0.35, a seven cent premium on the C$0.28 trading price at the time. This also served to bring Sandstorm in as an investor.

All of which left Donner well cashed-up, and more to the point unhedged for zinc, which for Patterson is the key metal at Bracemac-McLeod. “We look at it as a non-dilutive financing with a cost of capital, apples to apples to the banks, of about 12 per cent; while the banks that we looked at were anywhere from about 25 per cent cost of capital up to 35 per cent.”

There has, however, been a subsequent top-up. During PDAC the company announced the closing of a C$15 million private placement led by Haywood Securities. And with this financing complete, Donner Resources is now sufficiently funded to cover all of its funding obligations to bring the Bracemac-McLeod Mine into production as well as conduct further work on its exploration properties.

Key to the future success of Bracemac-McLeod is its location just six kilometers away from Xstrata’s 2,950 tonne per day Matagami mill complex, which is currently fed by the Perseverance mine. The plan is to bring Bracemac -McLeod into production in early 2013, just as Perseverance approaches the end of its mine life. The new mine should offer more than enough product to fill the gap left by the Perseverance production. The mill, says Patterson, will continue to run at full production.

To date, Donner and Xstrata have made good progress in the construction of the main access ramp, and three ramps to access the Bracemac zones. Harvey Keats, chief executive of Donner Metals, comments: “We are proud of the development team for keeping this project on budget and on schedule in an environment where such a good news story is rare”. And David Patterson adds: “Having Xstrata as a partner in this project has ensured cost control and has reduced the risk for Donner.”

Currently the reserve base stands at proven and probablereserves of 3.73 million tonnes grading 9.6% zinc, 1.26% copper, 28.25 grams per tonne silver, and 0.43 grams per tonne gold. The defined reserve is expected to contribute four years of mine life, but the companies plan to conduct further exploration both in the immediate vicinity of Bracemac-McLeod as well as in other areas of the Matagami camp.

This exploration program at Matagami has been proceeding well. David Patterson enjoys pointing out that the Bracemac-McLeod deposit was discovered after 50 years of exploration on the property, and yet proved to be the second largest deposit ever found there. Given that after so much exploration, such a massive deposit was discovered so recently, Donner is upbeat that further treasures lay waiting to be uncovered at Matagami.

Probably the most likely area to contribute further tonnage is the McLeod Deep and West resource, where there’s already an inferred resource totalling 2.63 million tonnes grading 8.78% zinc, 1.31% copper, 38.83 grams per tonne silver, and 1.06 grams per tonne gold. It is not yet included in the feasibility study but the plan is to prove it up further by drilling from underground stations. Patterson points out that the camp average is about 95 per cent conversion from an inferred to mining resource. So McLeod Deep and West present a sizable and probable expansion to the mining resource at Bracemac-McLeod in the near term.

This discovery has resulted in a substantial change to the mine plan. Under the new plan the mine will produce nearly 3,000 tonnes per day. “Which is important”, says Patterson, “because it lowers our operating costs, lowers the operating costs of the mill, lowers the capital recovery cost per tonne, and increases our revenues”. If the companies are successful in proving up reserves in McLeod Deep and other areas, the mine life is expected to increase from the current four years to seven or eight years.

Meanwhile, exploration continues elsewhere on prospects at Matagami. In February the companies announced that they had encountered massive and semi-massive sulphides at the New Hosco and Garon Lake Areas. In the New Hosco area, six diamond drill holes were completed to test previously discovered mineralization and encountered an alteration system that was much more extensive than expected. Highlights from the New Hosco area included 6.2 metres at 4.46% zinc, 3.27% copper, 29.8 grams per tonne silver, and 0.14 grams per tonne gold.

With production just around the corner, a quick re-examination of just what will be due to Donner is perhaps in order. Zinc is the only metal at Bracemac-McLeod which Donner has left unhedged, and this year at PDAC David Patterson explained why. 28 per cent of the net smelter royalty for Donner is from copper, silver accounts for two per cent, and gold also accounts for two per cent. Since 50 per cent of these streams are promised to Sandstorm that leaves 68 per cent of the NSR unhedged. The feasibility study for Bracemac-McLeod used conservative metal prices: US$0.80 zinc, US$2.50 copper, US$12.00 silver, and US$1,000 gold, which generates an NPV of around US$40 million.

But as Charles Wyatt pointed out in a Minesite article last March, “a 10 per cent increase in metals prices over what was used in the feasibility study results in a twelvefold increase in NPV and a twofold increase in IRR”. This highly leveraged position will really put Donner in the money if the zinc price rises towards old highs of US$2.00 a pound.

And though zinc has fallen out of favour over the last ten years, David Patterson was not alone at PDAC in predicting a bright future for the industrial metal. Andy Roebuck, head of market research at Teck Metals, made a compelling and very bullish case for zinc. He pointed out that there has been little exploration for zinc over the past 10 years, and that many of the largest mines are reaching the end of their mine lives. Xstrata’s Perseverance mine is a case in point.

To compound the effects of a tightening supply, Andy pointed out that 55 per cent of zinc is used in the production of galvanized steel, a product he expects Chinese car manufactures to begin using in larger quantities, as cars produced for the domestic market increase in quality. Adam Ho of Zincore Metals made similar predictions, arguing that there hasn’t been enough investment in zinc over the last ten years. “In the coming years there is a pretty good chance of a supply and demand imbalance as far as zinc goes. There is a good chance we are going to see higher zinc prices”, he said. With production just over the horizon, this is all very good news for Donner.