The author is an independent consultant who performs website moderation work for CEO.CA. The views expressed in this report are the personal views of the author and do not reflect those of CEO.CA. Vendetta Mining has no business relationship with ceo.ca nor @Evenprime. Nothing in this report should be construed as a solicitation to buy or sell any securities mentioned anywhere in this report. This article is intended for informational and entertainment purposes only! Please read the full disclaimer at the bottom of this article.
Well I think I found something of interest ...
Before I continue, let me state that I am a share holder of this company AND it is my largest position so stay level headed, question everything I say, and hear me out because I could be completely wrong and I hope you can bring me back down to reality if in fact I am out to lunch.
Okay, here goes:
Vendetta Mining decided to do a private placement a few weeks ago. I was pissed (See my post HERE ) but realized they still require a final 1 million dollar payment due November 6th, 2018 before they can officially own the Pegmont deposit outright (Page 22 HERE )
Now here is what I'm thinking:
The first tranche of the PP closed and that will be used to secure funds for the final payment on their Pegmont property, as well as give them the additional money in the coffers to stay afloat while they complete their PEA (due really soon).
But rumor on the street has it that they increased the private placement to accommodate a few of Gwen Preston and Scott Gibson's friends (Just rumors I heard while asking around at MIF)
Sure ... rumors <- who cares?
Well, as many of you know I am educated as an astrophysicist and although I strongly abide by the fact that correlation does not imply causation, I am willing to at least entertain the idea that maybe it is true.
The Metal Investor Forum (MIF) videos appeared on Youtube couple days ago and I noticed a HUGE increase in coverage by whom you'd say ... well everyone!
HRA-Coffin has been following this for a while now, so that is nothing special but Gwen Preston, Jay Taylor, and Greg McCoach all of the sudden have MIF videos interviewing the CEO.
Am I the only one who noticed this? I think not as the boys in the VTT channel were quick to post the links. But juxtaposing the increase coverage along with the rumors I heard - I'm willing to entertain the idea that I'm onto something.
Dont believe me? Check it out for yourself:
Mike Williams CEO of Vendetta at MIF Sept 28, 2018
Eric Coffin Interview MIF Sept 28/29, 2018
Gwen Preston Interview MIF Sept 28/29, 2018
Greg McCoach Interview MIF Sept 28/29, 2018
Jay Talyor Interview MIF Sept 28/29, 2018
Everyone is jumping on board - and why wouldn't they - the train is about to leave the station!
I challenge anyone, everyone to show me a company where everyone at MIF interviews the same CEO <- they ALL know somethings up!
Okay okay, not everyone, we are still missing Jordan Roy-Byrine (probably because he was busy with the respected ex-director of VTT Doug Ramshaw see his video HERE , John Kaiser (Who praised VTT before HERE and is a bit busy with his $RNX among others) and Joe Mazumdar who must just be late to the parade :)
And here is one more thing. If you run the numbers yourself on the project (the PEA will be out soon so you won't have to) but we are anticipating something around a NPV8% of 250 million with a 30% IRR - you'll noticed the stock price is pretty low in comparison. I believe we would need to be above 30 cents to warrant a 45 cent take over bid which in my opinion is still not full value for this asset. I can see this PP closing and the stock rising to over 30 cents relatively quickly albeit healthily as the company takes on this expanded coverage and word gets out.
Talk to your Technical Analysis/Chartists they'll tell you the bottom looks quite supported. Recognize your risks versus rewards, do your due diligence and tell me what you think. For all I know I have fallen in love with the stock and I'm being irrational <- bring me back down to reality! One thing I do, and I do well is listen, so speak to me!
To help you with the fundamentals I am posting pretty much verbatim @pealsinmining's post from the other day as it is one of the best due diligence posts I have ever read.
The original post can be found HERE
Not all #zinc/#lead stories are equal. Some lead/zinc stories are more equal than others.
So to start , allow me to borrow some analyses and observations from a group of well respected mining executives from what we can call by now , a mining brand , being Osisko. Probably lesser known than on one hand their royalty focus ( through $OR ) and their gold exploration projects at $OSK on the other hand , there is an additional Osisko daughter $OM purely dedicated to base metals and more specifically zinc and lead projects. So borrowed the folowing from their most recent corporate presentation .
As opposed to gold and even copper ( where the absolute majority of production is coming from open pits ), 90% of zinc is mined underground. So as a consequence , open pit zinc projects are rare and high grade open pits are perhaps even unique.
A picture saying more than words, jumping to a very informative recent comparative study done by Vendetta Mining in their corporate presentation, comparing 26 zinc/lead projects with NI43-101 compliant resources. Out of these 26 projects , only 5 of them are predominantly open pit mineable.
These 5 projects are:
- $CNX Nash Creek
- $AQA Back Forty
- $SLR Lik
- $VTT Pegmont
- $SZM ScoZinc Mine
However before starting to compare the size of deposits and respective grades, in order to analyze potential economics for underground as well as open pit projects, it would be wise to analyse based on what metal price assumptions those resources were defined and how they compare to actual spot prices on one hand and long term consensus metal prices on the other hand.
At the high or higher side of this spectrum , we find the
- $MOON project ( 2018, 1,3$ Zn 1$Pb )
- $SLR Lik project ( 2014, 1,2$ for Zn & Pb )
- $KAR Aripuana project ( 2016, 1,26$ Zn 1,01 Pb )
With long term consensus prices estimated at 1,10$ for zinc and 1$ for lead, some large resources from $TK , $FWZ and $SSV are calculated based on these prices.
To conclude, at the very low side of the same spectrum and as a consequence below the long term consensus pricing , we find the
- $VTT Pegmont project ( 2018 , 1,05$ Zn & 0,95$ Pb ) next to the
- $AZ Taylor deposit (now South32), which needs no further introduction.
Size is nice and grade is king but at the end of the day only margin pays the bills. Base metal projects are known to be very capital intensive and as a consequence , with the exception of AZ off course , it is very difficult to find zinc/lead projects with a high post tax IRR and a manageable capex at or around long term consensus pricing.
As we can see within the group of underground mining projects :
– Prairie Creek ( $CZN ) , located in Northwest Territories, while using 1,1$ Zn and 1$ Pb, FS from 2017 , generating
- post tax NPV ( 8% ) of 188 M$ with an IRR of 18.4% while upfront capex is 253 M$
– Tom & Jason ( FWZ ), located in Yukon, PEA from this year,
- post tax ( 8% ) IRR of 24% , NPV of 448 M$ while applying 1,21$ ( long term consensus for zinc being 1,1$ ) , upfront capex 404 M$
– Cardiac Creek ( $ZNX ) , located in Yukon, 2018 PEA , discounted at 7%,
- post tax IRR of 27%, NPV of 401 M, while upfront capex at 302 M, if applying discount rate of 8% and the long term consensus price for zinc, the post tax IRR drops below 20% and capex exceeds NPV
But also within the group of open pit projects :
– Lik ( SLR ) , located in Alaska, in applying the sensitivity tabel from the 2014 PEA , with zinc at 1,1$ ,
- post tax ( 8% ) IRR would be at 20% , the NPV at 195M U$ , while upfront capex would be 352 M U$
– Nash Creek and SuperJack ( CNX ) , located in New Brunswick , 2018 PEA applying 1,25$ Zn and 1,1$ Pb,
- post tax ( 8%) IRR of 25.2% and NPV of 128 M$ with upfront capex at 168 M$
– Back Forty ( $AQA ) , located in Michigan, US , already permitted and in pre-construction phase, based on 2018 FS, cashflow discounted at 6% ( gold & zinc project ) ,
- post tax IRR at 28.2% and NPV at 208 M U$ , capex at 294 M U$, but using 1300$ Au, 20$ Ag, 1.2$ Zn
Given the specific nature of base metal projects as being very capital intensive and as demonstrated above , a prime location with good available infrastructure is key , even for ( high grade ) open pit projects , to have a good chance for bringing a valuable resource into production.
With reference to mature mining districts within safe jurisdictions , we all know the Timmins Camp in Ontario and Battle Mountain in Nevada. Comparable but perhaps lesser known is Mount Isa , in Queensland , Australia , and one of the leading lead/zinc districts in the world. This district being host to amongst others Glencore’s lead smelter , South32 ‘s Cannington mine, still the worlds largest lead mine and Dugald River , MMG’s newest zinc/lead mine.
Exactly in this mature mining district , we can find the Pegmont project from Vendetta Mining.
In the following , I will first touch on some basics ( for some possible newbies ) regarding the Pegmont project, then followed by discussing the impact of the existing mining infrastructure on the economics of the project and to end with some recent developments and news and how this affects the already more than positive outlook for Vendetta Mining.
Compared to the absolute majority of other projects mentioned or discussed, Pegmont is not a zinc/lead project but a lead dominant lead/zinc project. Not only dominant in average grade and resource but even more regarding the NSR contribution of the lead component to the economics of the project ( see later ).
Pegmont started a couple of years ago as a , I would say rather typical , underground mining scenario with an open pit starter pit. Based on more than 30000 meters of drilling and 2 resource updates later, the project has now evolved into a predominately open pit scenario with additional underground mining towards the end of the mine life.
The 2018 resource update contemplates a combined ( indicated and inferred ) resource of 14.M T, of which 41% is in the indicated category at Pb+Zn grades of 9.1% ( 6.5% Pb , 2.6% Zn ). Even more important is the fact that the open pit component represents 9M T ( out of 14 ) of which 54% is in the indicated category at a Pb+Zn grade of 8.8% ( 6.2% Pb, 2.6% Zn ). This can without any doubt being considered as a high grade open pit and bodes very well for the upcoming economics study.
Grade is great but what about metallurgy ?
2 rounds of metallurgical testing covering different zones in both open pit and underground , clearly demonstrated that Pegmont can produce a high quality commercial and clean concentrate for both lead and zinc and with high recoveries for lead ( 89.7 to 92.7% ) and zinc ( 70.4 to 75.5% ).
The overwhelming impact of the lead component on the NSR of the project should be clear by now given the higher grade compared to zinc, given the higher recoveries for lead and adding the higher pay-ability for the lead concentrate and finally the lower transport costs for the lead concentrate compared to zinc.
During Summer last year, VTT management publicly gave an indication of their previously internal capex numbers for bringing Pegmont into production. Based on a standalone scenario ( construction of own mill ) , they indicated a capex of between 120 and 140 M U$. In case of toll milling , this capex would even drop to an expected 50 to 60 M U$. Within an approximate distance of 25 km , Pegmont has on one side the Cannington Mill ( from South32 ) and on the other side the Osborne Mill ( from Chinova ) , both with sufficient spare capacity to handle the potential production from Pegmont modeled at 1MT per year.
Very clearly the existing infrastructure has a very positive effect on the overall cost for bringing Pegmont in production.
A major advantage is the existing transport infrastructure towards the smelters. Pegmont is less than 4 km away from existing haul roads. The connection to these existing roads is budgeted at 1 M$.
With this connection in place the lead concentrate can be trucked to the Glencore lead smelter which is 5 hours away. With the same road connection in place, the zinc concentrate can be trucked to a railhead nearby connecting with Townsville, where the Korea zinc smelter is located.
With reference to power , within a distance of 15 km there is a LNG hub to tap for energy.
Taking into consideration that these internal capex numbers were used at evaluating the Pegmont project in the 2013-2014 timeframe with a view of a potential earn in , while stress testing it at 0,95$ lead and 0,90$ zinc, some recent news and developments could further improve the positive outlook for the project.
First, some recent elements that could bring the expected capex even further down.
During the second round of metallurgical testing , a lot of work was done to evaluate the recoveries and quality of concentrates of the transitional ore in the different open pit zones. The results were very positive on both levels, indicating that the closer to surface transitional ore could be mined economically and should no longer be considered as waste. These results logically impacting both opex and capex for the project. Opex would be positively impacted due to a reduction in strip ratio for the open pit portions. Since the indicated capex numbers from the 2013-2014 era contained some important pre stripping costs ( the trans ore was taken into account as waste ) , these cost should be much lower as originally expected.
The same capex enveloppe also contained a budget for the costs related to the construction of a tailings dam. As indicated in a NR from end of August, VTT management is in the process of evaluating in pit tails disposal , leading to possible capital savings related to this tailings dam.
Finally and information coming from a presentation by Michael Williams during the MIF end of September , in active discussions with the owners of the Osborne/Chinova mill nearby, VTT received the permission to use the Osborne mine infrastructure , including airstrip and camp, hereby reducing the pre-constructions costs within the capex budget.
The combination of these 3 factors will without any doubt have a very positive impact on the earlier indicated capex numbers.
During the same MIF presentation , Michael Williams mentioned the application of the long term consensus pricing in the upcoming economical study under the supervision of AMC Consultants.
AMC , who also consulted Arizona Mining , exactly used this long term consensus for the calculation of their PEA update from January this year , stipulated at 1,1$ zinc and 1$ lead.
Taken into consideration that the recent resource update from VTT , was based on only 1,05$ zinc and 0,95$ lead, and based on a sensitivity analysis, probably more than 14 MT could be considered in the future mine plan, including more ore from open pit zones with lower opex involved.
Moving forward , VTT management from a strategic point of view , has chosen to proceed to a PEA based on a standalone scenario , with the goal of proving Pegmont to be robust both on an economical and technical level. With solid numbers for a standalone situation, logically the related numbers for tolling would only be better ( given the lower capex ).
Given the large and high grade open pit portion of the resource, together with excellent recoveries and benefitting from the existing local infrastructure , positively impacting the capex, I am very confident that the publication of the upcoming PEA one of the coming weeks , will be a real eyeopener both on the level of the NPV , post tax IRR and manageable capex and this while using very conservative long term consensus pricing.
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