The Hunt Brothers’ Silver Speculation – Canadian Zinc Interview (TSX:CZN, OTCBB:CZICF)
By: Marco G.
September 16, 2010
http://goombarhsedge.blogspot.com
Introduction
The author is old enough to remember the 1980’s during the last precious metals’ rampant rise and the news about the Texas oil billionaires, Nelson Bunker Hunt and William Herbert Hunt,
brothers trying to corner the Silver market. The Hunts eventually controlled about one third of the world’s Silver, before under political pressure, the COMEX rules changed and the Silver price crashed.
One of the Hunt undertakings during this time was the acquisition and building of the Silver mine at Prairie Creek in Northern Canada. Now this property and mine belongs to Canadian Zinc Corporation (TSX:CZN, OTCBB:CZICF). For further information, Canadian Zinc’s latest Powerpoint presentation is
here and their website is
here. Canadian Zinc is also a Silver stock favorite of Jason Hommel, the publisher of the Silver Stock Report. Interestingly, a website named
inflation.us http://inflation.us/czn.html is also recommending Canadian Zinc to their readership.
Canadian Zinc is an intriguing investment story about a new high grade Silver, Zinc, Lead and Copper underground mine that was 3 months from startup before the previous Hunt brothers’ speculation went bankrupt. As the author
is a junior miner investor, and has a great interest in
Silver, it was extremely opportune to be able to speak to one of my Silver holdings’ Chief Operating Officer during the Silver price moves this week. The author happened to be contacted by Earl Hope, Investor Relations, of Canadian Zinc regarding their calendar, which I had requested a copy of. One thing led to another, and before long, Mr. Alan Taylor, COO of Canadian Zinc was giving me an exclusive interview on very short notice. The following interview notes are verbatim from September 15, 2010.
Interview with Alan Taylor, COO & VP Exploration of Canadian Zinc Corporation
Mr. Taylor was asked to start and give a background and introduction to the company.
Alan Taylor: Canadian Zinc has been around since 1999 with a name change from the previous San Andreas Resources Corporation which acquired the Prairie Creek project in 1992 through an option from Conwest Exploration. The project itself is a very unique project in the mining realm, for a number of reasons, and a couple of the significant ones being that there is an almost complete infrastructure on site right now, and that there is a significant high grade resource in the ground that is still open ended.
You have to go back a little further than San Andreas, with Prairie Creek because it has a long history to it. The mine was fully permitted in 1980 for operations under Cadillac Explorations when the Hunt brothers received a loan for $65 million dollars to set up infrastructure including a 1000 ton per day mill and 3 levels of underground development, accommodations and workshops on site.
Figure 1: Birds eye view of the Prairie Creek mine of Canadian Zinc. Note that all the facilities are already in place and in pristine condition, being newly built in the 1980’s and not being used.
They were focusing on Silver trying to somewhat monopolize that and they were out maneuvered through political influences of the US securities. In 1982 when Silver prices collapsed, Prairie Creek was 3 months away from production and they went bankrupt and it was abandoned, even though 90% of the mine was there. It went into receivership for many years under the maintenance of Conwest and in 1992 San Andreas picked it up. Since 1992, the scope of the project has been looked at in a longer term, because of the location it is in, it is a sensitive environmental location because of proximity to the Nahanni National Park Reserve. Because of the sensitivities of environmental management, it has taken longer to move along, and the company view was to see a longer term project with longer term resources rather than the original 7 year outlook of Cadillac. So since that time, we’ve expanded the resource base from the original reserves of Cadillac of 2 million tons, now we have in excess of 11 million tons and we can now easily obtain a 20 year feed for the mine. With that capacity of resources in hand, we taken the last few years to upgrade the resource to measured and indicated. On the back of that we have an indicated minimum 14 year life for just measured and indicated and an equal amount in longevity to the mine in inferred resources.
On the backs of that, we have decided to submit our operations applications to the regulatory people. There is a long history to Canadian Zinc and there is a long history to our investor base which we have a lot of long term shareholders, we have a lot of people waiting for us to receive permits. That a key focus of our push right now is to get those permits in hand and I think that from management’s perspective that has been holding up the movement in the markets, that is what they are waiting for. We have had numerous successful campaigns of exploration drilling which have returned stellar grades of lead, zinc, silver and we’ve seen very little movement in the market as a result of that, so that leads me to believe that the permit is the number one focus here.
Figure 2: Five year chart of CZN's stock price. The stock was held in check by the uncertainties of the proximity to the Nahanni Park Reserve and the land use and water permits. Also since fall 2008, the stock is slowly recovering from the crash in the markets.
So with that in hand, we looked at the resource and we are proposing an operation now to the regulatory authority which is the Mackenzie Valley Land and Water Board. For a similar operation, which was originally permitted back in 1982 and the reason we are proposing a similar operation, is because it works and not only that, we hope that the original permit would expedite the regulatory process somewhat because we are proposing a mine that is already there.
So we applied to the water board in 2008 for an operations application and we have been through many numerous land use permits and water licenses applications for exploration development, which have taken a long time to get, but we are well aware of the system and how it works. This functionality in part we applied in 2008 and were referred to an environmental assessment in middle of 2008 to no surprise. We are presently in environmental assessment under the Mackenzie Valley Review Board. We are now into the second year. The tentative timetable for this is closure for this environmental assessment in 1st quarter of 2011. That is not necessary the end, that is just the environmental phase that we are in right now under the Review Board. After that it goes to Ottawa for an internal EA and if it is approved by the minister, it goes back to the Water Board for issue of a permit.
Marco G.: This is the main permits that you are looking for?
Alan Taylor: Yes, two permits, land use permit and water license, those are the key permits for operations. We have permits right now to operate our exploration programs only.
Marco G.: That is the history and background of permitting issues. How about the geology of the project and exploration potential.
Alan Taylor: The geology goes way back to 1928, when the original prospector came up to Prairie Creek and discovered the high grade vein on the west side in what we now call Zone 5. For many years up through the 60’s the most of the focus was on Zones 7 and 8. 8 is 5 kilometers south of the present mine site, they actually went underground and put two tunnels before the main site was discovered. During the late 60’s when they did discover the main site, the focus moved there. It is very interesting in that there is still a lot of potential to the south and to the north, along extensions to the existing mine site. Since the late 60’s, 80% of the focus has gone into the mine site area. They’ve established 3 levels with over 2 kilometers of underground development on the vein system which was their main focus. When they drove the levels on the vein, they defined the 2 million ton reserve (known as historical reserves). Their focus was with the Silver and Silver was $40 an ounce at that time and the lead zinc was an extra on the side.
Marco G.: Help me understand a little bit, what is the geological feature, collision of plates that defines the …
Alan Taylor: Well that is a matter of geological debate somewhat, but from our data we are kind of an anomaly out there as we are surrounded by nothing but sedimentary rocks, there is no thermal source nearby such as volcanic or igneous rock. From our geological work it seems that faults are very important for creating weaknesses within the rocks structures and perhaps transporting metals great distances along those faults and depositing them in these specific geological environment here. We are the only significant mineral resource for hundreds of kilometers in this particular area.
Marco G.: Doing a bit of reading on your site, it is a kind of VMS and that there are 3 types of deposits the Vein Massive Sulfides, the Stratified Sulfides and the…
Alan Taylor: Mississippi Valley Type, yes the originally discovery was a vein type, which occurs in a fault zone and can be seen on the mountains in Zones 7 and 8. It is very evident and that is where they went underground originally. (see the following picture where the yellow lines have been drawn on the photo)
Figure 3: Mineralization in the Vein Massive Sulphide. Note the yellow lines tracing the vein on the hill where the main deposit is.
Marco G.: That’s what is shown on your web site on the picture with the yellow lines marked on the side of the mountain?
Alan Taylor: That’s right. These veins can be traced the entire length of the property, although it is not continuous but you can see remnants of the veins as it continues in similar geology along the 16 kilometer length of the property. The focus for exploration development has been on this vein. In 1992, when one of the exploration holes went a bit deeper in the vein, and intercepted a second type of deposit which we term stratabound, which wasn’t known at the time during the Cadillac days. Stratabound is a little different from vein type. The vein type crosscuts all the geology and it is in a fault zone. Stratabound tends to follow the rocks a bit more. It is thicker, and has equal grades of Zinc but less lead and silver than the vein.
Marco G.: Thicker you say by…….?
Alan Taylor: Tens of meters as opposed to 2 to 3 meters for the veins.
Marco G.: So going as high as 20 or 30 meters?
Alan Taylor: Yes, the stratabound. But the stratabound, we don’t have any underground development on. It is 200 meters below our lowest level of development right now. We have only have drill holes, so it is still to be determined the exact nature of that beast. Right now 90% of our resource base lies within the veins still. 10% within the stratabound.
Marco G.: How deep is the stratabound from the surface?
Alan Taylor: 200 meters below.
Marco G.: Is it feasible for open pit.
Alan Taylor: No, there is no open pit here contemplated. It is entirely 100% underground operation. But the unique attribute of the stratabound is besides its thickness, is that it seems to be associated with the proximity of the veins. So as the mine develops, and the vein continues down for hundreds of meters, it runs into the stratabound, so you can actually contemplate into the future, when the development gets down at depth, you could be mining both vein and stratabound at the same time.
Marco G.: So, that would add tremendously to your…the stratabound is part of your inferred?
Alan Taylor: Yes
Marco G.: It is not measured and indicated as you are not planning initially…
Alan Taylor: That’s right. We’ve only explored the stratabound just over a kilometer strata-graphically at the mine site itself, whereas the vein right now from a resource perspective is over 2 kilometers. The stratabound is a little bit deeper.
Marco G.: So, if the stratabound follows the veins and you have 16 kilometers of veins but you only have 1 kilometer of stratabound because you haven’t looked for it yet?
Alan Taylor: Well, we have indications, through a couple of drill holes that are 2 kilometers to the south of the mine of stratabound material. But there is nothing put together to make up a resource yet, the detailed drilling is not there. But the plumbing is there, the stratabound material is there.
Marco G.: Plumbing in terms of geological plumbing?
Alan Taylor: Yes, very similar geology, throughout this 16 kilometers of north south part of the mining leases.
Marco G.: I remember, you are a geologist,
Alan Taylor: Yes
Marco G.: And you are very …it is different talking to people…talk to a broker….they emphasize things…and you being a scientist, you say it with just a straight face.
Alan Taylor: Yeah
Marco G.: You don’t get excited, and in fact, it seems like I’m trying to draw it out of you.
Alan Taylor: (Laughs) Perhaps I’ve been with it too long, I’ve been associated with this project for 15 years.
Marco G.: I see.
If you have the vein and the stratabound, and you’ve only defined the vein, and the vein is this long, the likely-hood is that the stratabound is that long. The stratabound is a lot thicker than the vein.
Alan Taylor: It has the potential to be, yes.
Marco G.: I did notice that the vein is a lot higher grade, almost double the grade of the stratabound.
Alan Taylor: Yes, so the vein has more revenue associated with it, as far as commodities go, in situ value and such, because of the high lead zinc.
Marco G.: But what about the mass of the stratabound, it is easier to mine?
Alan Taylor: It is easier to mine and you can mine more of it in volume, so you could make more feed for the mill. The vein constrains you from an underground perspective, as to how much you could mine, how many tons you can deliver to the mine.
Marco G.: Right, whereas in stratabound, you just dig away.
Alan Taylor: That’s right.
Marco G.: It’s more… less likely to meander?
Alan Taylor: Yes, and that wasn’t known about at all in Cadillac days. It has a lot of blue sky potential still. Even the present resource that we’ve defined is still open ended.
Marco G.: Yes, so there is great potential. I sure am glad I’m talking to you! It helps me understand.
Alan Taylor: Yeah, and even though there’s a long history for the project, there is still a great exploration potential out there, it is a big property.
Marco G.: Now, certain investors look at the grade of the ore. Your company is called Canadian Zinc and you have 10% Zinc, 7% lead and 200 grams Silver and maybe a fraction of percent of copper how much ballpark wise would the ore be worth relative to the ore from somewhere else? In the Noront discovery, they said the ore was worth $6000 dollars per ton.
Alan Taylor: I hesitate to put a real number on it, but it is very significant when you can compare it to gold mines on an equivalent basis as far as ounces per ton. It all depends upon what numbers you put in. If Silver doubles at this time next year, we’ll call it a Silver mine again… (laughs)…which it could do! Because originally it was permitted as a Silver mine.
Marco G.: Oh really. Well, I like Silver, as in all my writings, I know your average Silver mine can make a go of it at less than 200 grams per ton, 200 is great, they can do it at 50 grams, just depending upon how close it is to surface.
Alan Taylor: Yeah, one of the needs to have for this area is high grade because we are remote, the transportation costs are big to move the product out. It is not like a diamond mine where you can monetize by sending the product out in a baseball cap…(laughing).
Marco G.: Right, you have to have ten couriers, and only one is carrying the real stuff.
Alan Taylor: Correct, matter of fact, back in the 80’s, the Hunt brothers were going to airlift their copper concentrate out which contains the bulk of their Silver values.
Marco G.: Oh, the copper and the silver go together.
Alan Taylor: Yes.
Marco G.: It is very interesting, there is lots of up side. So summing it up, why should an investor invest in Canadian Zinc.
Alan Taylor: Well, we’ve been around for many years, and some would stroke that against us, but I maintain and the reason I’m still here because Prairie Creek provides an opportunity, not just for the company, but for the region in general which is very poor in any economic development what so ever. Having infrastructure on site already, having it pre-permitted many years ago bodes well for moving it forwards and having it become one of the great contributors to the lead zinc inventories of Canada. Lead Zinc overall is looking very strong, we are almost at $1 dollar for lead zinc today, and the outlook is still very bullish for that.
And you mentioned earlier about some concerns for parks. It’s been dogging us for many years because there was a proposal to expand Nahanni Park many years ago. We’ve worked closely with Parks Canada and other federal agencies in discussing the matter and moving forward in a collaborative type fashion. We’ve done great strides in that respect, everybody is on side, when the park was expanded, we were mentioned by the Prime Minister in the same speech as our third party rights were protected and the rights of access. We continue to work with Parks Canada closely as far as moving together towards operations and they continue to work with the regulators also, as it is their first stab at actually moving an operation ahead, usually they are just parks related, but in this case they are both.
Marco G.: How about the natives? Are they on side as well.
Alan Taylor: The natives are another challenge, but we feel we have made great strides over the last fifteen years that we’ve been associated with them. We’ve done extensive consultations with them. One of the pieces that play on us occasionally is that the DehCho nations do not have a federal treaty settlement with the government. So there is some reluctance on their part to give anything away before they can establish what their arrangement is going to be with the federal government, but they at the same time recognize the paucity of economic development in their location. At this time, we are working closely in negotiations with a couple of communities for impact benefits agreements so that they can accrue some benefits for this operation also.
Marco G.: Great, thank you.
Assessment of the Potential of Canadian Zinc
The author was curious about the value of the high grade ore at Canadian Zinc and wanted an estimated value per ton. There is a simple calculation available with the
on-line Kitco Ore Metals Value Calculator. Using a rough average of the total resources for the measured, indicated and inferred, the results are displayed in the following figure:
Figure 4: Estimated Ore Value at Current Prices. Note that the values are rough averages of the total ore resources including measured and indicated and inferred. The estimated value of $800 USD per ton is quite valuable relative to other miners.
Compare the estimated value of the CZN ore yourself with your own favorite miner.
The resources for Canadian Zinc in the
2007 43-101 technical report for Prairie Creek are only for the “Main Zone” at the mine site, but there are 13 mineralized zones altogether on a 16 kilometers trend in the property. A summary of the existing officially recognized resources is listed in the summary chart following:
Figure 5: Summary of CZN's Prairie Creek project. Note the high grades for the Silver, Zinc and Lead providing for a profitable 20 year mine life at present resources.
The third party author(s) of the technical report , MineFill state the following about mining:
Robust project economics may reasonably be anticipated by virtue of:
• The available resource grades
• The fairly straightforward metallurgical process for co-mingled Main Quartz Vein and stratabound material that yields acceptable silver, lead and zinc recoveries into selective lead and zinc concentrates: and
• The likely limited amount of start-up capital required for mining and processing Main Zone mineralized material.
About the mineralization up side MineFill also state:
It is also worth emphasizing that significant upside resource potential exists over several kilometers to both the north and south of the Main Zone area: the preliminary results indicate the presence of high-grade, vein type mineralization; and preliminary analysis suggests that structural continuity of the vein-type mineralization might exist. Additional stratabound mineralized bodies might also be present.
Therefore, this is a third party opinion, and this author concurs, that the resources could be much increased because of:
1. Trend extensions of the Vein mineralization to North and South
2. Extensions of Vein mineralization to depth
3. Mineralization in the stratabound, (20 to 30 meters thick) which parallels and underlies the veins
Canadian Zinc discovered these new Stratified Massive Sulfides (SMS) mineralization in 1992 that underlies the original Vein (VMS) mineralization discovered much earlier. As Mr. Taylor indicated, the geological indicators are positive for SMS potential bodies under all the VMS zones. The SMS mineralization is relatively lower in grade averaging 5% to 6% (which is still high grade), but the mineralization in SMS areas are 20 to 30 meters thick (relative to the 2 or 3 meters for the VMS).
The author is aware of the current deep drill that is testing an extension 4 kilometers to the North of the mine site. Such is the manner of these self-effacing gentlemen, of Canadian Zinc that they did not even mention the possible upside from this
deep hole drill program that they are presently doing.
Summary
The author sees Canadian Zinc as a hidden gem for a longer term hold. The resources in place are high grade with stellar relative value. The existing official resource makes for a robust mining operation at the main site. The possibility of further exploration potential is almost certain, due to the Vein on trend and to depth. There are already discovered multiple zones to be further delineated officially. There are also the possibilities of the stratabound SMS thick mineralization underlying all their Vein zones. Overall this is a large property with much further potential. The Deep Drill results should soon be forthcoming.
For production, Canadian Zinc has an intact pristine mill and infrastructure that is 95% complete. Only minor upgrades such as a higher efficiency generator are required. The mining plan is relatively straight forward without complexities or cyanide usage. The mining tailings are proposed to be returned to the stopes for backfilling. Large capital expenditures are not expected to be required.
The permitting process for Prairie Creek is nearing closure on the previously fully permitted mining operation. The local inhabitants appear to be supportive and will participate in the economic benefits, that a production mine will bring. The previous uncertainty about the Nahanni Park Reserve was already concluded with an exemption for Canadian Zinc’s mining properties.
For Canadian Zinc (TSX:CZN, OTCBB:CZICF) it may be as Mr. Taylor says with a straight face, and without emotion that
“there is blue sky potential at this open ended deposit”.
The author is long Canadian Zinc (TSX:CZN, OTCBB:CZICF)
Important Disclaimer
The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.
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