Gecko Research, Feb 3, 2017
* Zinc is just turning the corner where supply won’t be able to meet demand, hence prices are going higher
* Large mines have been closed down and there’s nothing in the pipeline to replace that production shortfall
* Underground zinc mines/projects are looking at 5-8% grade, Zinc One’s Bangará Mine is >20% Zn starting right at surface
* People – Nothing is more important and CEO James Walchuck is a company builder and mine builder – he builds mines for a living
Zinc One – A Junior With A World-Class Mine
Zinc One Resources (TSX-V: Z OTC: RRCPF) is a new zinc company that was launched on January 24th, partly by the same group that put Silver One (V.SVE) together. And the two companies have things in common as Greg Crowe (CEO of Silver One) and Barry Girling are members of the Board of Directors in both companies.
8 days. That’s how long our newest portfolio holding traded publicly as Zinc One Resources before a major deal was announced. And trust us, this is a MAJOR deal, at least according to our sources.
The move to acquire the Bongará Zinc Mine, including the Charlotte Bongará Zinc Project, will put Zinc One Resources (V.Z) on the map of imminent zinc producers. After the release was out we immediately reached out to our network to try to find out more about Bongará.
What we learned was that Bongará is a former producing, very high grade mine in Peru that was closed down in 2008 due to bad market conditions. The acquisition also includes the Charlotte Bongará zinc project and this is the first time these two adjacent projects have been owned by the same operator which makes this even more attractive.
In fact, these two projects combined offers an incredible opportunity to identify a very high-grade resource along a 4km-long trend.
Grades – There’s nothing like this
A normal zinc deposit runs around 5-8% Zn, and that’s true for many of the deep underground deposits that are around today. Bongará has over 20% Zn with sweet spots of even more than that, up to 25-30% Zn.
And here´s the beauty of this story – it sits right at surface. The project is one of the highest graded zinc mines in the world that is located in a great jurisdiction. It will be mined by open pit and there’s very little overburden, basically just use excavators and truck it to the processing plant.
So, what does open pit mining really mean? Well, it’s the absolute easiest way of mining with potential hurdles easier to handle. More importantly, it’s the cheapest way of mining. We like low cost and low cost is how you make money.
So how much is 20-25% Zn grades? What is it worth? How much is it in terms of gold equivalents? The grades we are talking about here is worth around US$600/tonne or 0.5 ounces/tonne of gold if you will (15 gr/t Au). There are very few mining operations in the world with these attributes, even fewer that are open pit mines.
Bongará is a unique project and it could fit well in the portfolio of any mid-tier mining company. In fact, as Zinc One moves Bongará closer to production, there’s a real risk/possibility of Zinc One being taken over.
Potential for the stock Z.V
In Wednesday’s release Zinc One also announced a $10-million financing and after all is said and done, we are looking at approximately 105m shares outstanding, or a ~85 Mcad market cap.
We know things don’t happen overnight, but after the deal is closed and Zinc One has communicated a strategy to put this former mine into production again, this should very well motivate a market cap of anywhere between 250-500 Mcad, probably even higher than that as the bull market in zinc moves spot prices higher.
That indicates a potential upside of at least 3-5 times from today’s levels. It’s our guess that Zinc One will become a “zinc-market-darling” over time as there aren’t that many “pure” zinc juniors out there. Even fewer of them are of any higher quality and with the fundamentals for zinc being so strong, we are thrilled to have Zinc One as our core zinc holding.
In comparison to Zinc One one can look at Arizona Mining. Formerly known as Wildcat Silver, this poor management tried to market their flagship project as a silver project back in the day when silver was hotter than zinc. Arizona has nearly three times as many shares out as Zinc One and a market cap of almost 750 million (seriously!?). On top of that, at least from our point of view, Arizona is poorly run and might also have very big issues with their metallurgy. If we were into shorting, we would seriously consider shorting Arizona Mining and go long Zinc One Resources.
As we have explained earlier to our subscribers, large zinc mines have already or are on their way of closing down and this supply shortage isn’t going to be met with any “quick fix”. Spot prices are currently sitting around a very healthy $1.25/lb, zinc is in a bull market and we think it’s going a lot higher. Don’t you just love this chart below?!
Meeting the management
Recently on a trip to Vancouver we had a long breakfast meeting with Zinc One’s CEO, James (Jim) Walchuck. This guy is truly a hardcore mining guy with a vast experience of building companies and putting together the right teams. Mr. Walchuck is an experienced mining engineer with 36 years in the mining industry under his belt. He left us with an impression of being a calm and structured man but with his mindset to build a fast growing and aggressive zinc company. Jim’s background is the one of being an operator – we know he will by assets that can be put in production.
In the mining business, nothing is more important than the people running the company. Without great people, it doesn’t really matter how good of a project the company has. Jim Walchuck and Zinc One is a perfect match.
Gecko Research were the first to recognize this opportunity
Zinc One is put together by well-connected and well-known people in the mining industry and as this new story unfolds, it will get a lot of attention in the market. We have been buying shares lately and we intend to continue buying going forward.
Gecko Research were, as far as we know, the first newsletter to identify and write about Zinc One, something we feel a bit proud of to be honest. We don’t expect this to last though as more brokers, newsletters and analysts will very likely pick up on this new company as the story evolves (they would be crazy not to).
We own shares in Zinc One and we have done our due diligence. It’s time you do yours.