Tuesday, October 19, 2010

Investors Guru Small Cap Stock Observer

Xstrata Picks Up Tab For Definition Drilling At Matagami

Donner Metals (TSXV: DON) is in a sweet spot. The Canadian junior with a market cap of $33 million is already building a mine with Xstrata Zinc Canada (LSE: XTA) on the Bracemac-McLeod deposit in Qu├ębec.

Now Xstrata Zinc Canada has announced that it will conduct a definition drill program on the near-surface portion of the PD1 deposit located in the "West Camp" area of the Matagami Project, about 30 kilometres from Xstrata's Matagami mill.

The best news for Donner shareholders? Answer : The program will be fully funded by Xstrata Zinc.

The objective of the program is to define a measured resource at PD1 upon which a decision will be made to conduct a feasibility study.

The scope of such a study will assess the viability of exploiting the upper portion of the PD1 deposit by open pit which would supply incremental feed to the Xstrata's Matagami mill.

This confirms Xstrata's confidence in the Matagami Project and its determination to keep Xstrata's wholly-owned on-site mill running at full capacity.

The PD1 definition drill program will consist of 11 shallow diamond drill holes that will in-fill previous drilling between surface and 150 metres vertical depth.

The historical resource (not NI 43-101 compliant) reported for PD1 is 1.45 million tonnes grading 5.30% zinc and 0.95%.

Xstrata's enthusiasm for the Matagami project can be attributed to the long term bullish fundamentals for zinc.

According to the International Zinc and Metal Study Group, global zinc consumption is due to rise 740 tonnes (7%) in 2010 while mine production is predicted to rise only 623 tonnes (5.5%).

Zinc is an infrastructure commodity with no viable commercial substitutes. It is the key ingredient in galvanized steel. China imports about 15,000 tonnes of zinc every month. In 2010, China's zinc consumption is forecast to rise to 5.4 million metric tonnes.

Zinc demand is harnessed 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%.

The Bracemac-McLeod Mine is destined to replace Xstrata's Perseverance zinc mine, which is closing in 2012.

The new mine and the potential new resource at PD1 will feed Xstrata's 2,600-tonne-per-day Matagami mill complex.

In total the Matagami mining camp boasts historical production of 8,600 million lbs. zinc and 853 million lbs. copper worth about $11 billion at current spot prices.

For Donner shareholders the good news is that Xstrata is taking the financial risk on the drilling of the PD1 target, and they are aggressively seeking more feed for the mill.

Investors Guru Small Cap Stock Observer publishes interesting articles by contributing writers, in addition to its own content. This article was written by Peter Cole and we have not verified its details.

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