By Peter @Newton Bell, 15 December 2016
Following an extensive conversation on the zinc markets, Mr. Doug Ramshaw and I talked about Vendetta Mining Corp (TSXV:VTT). I was impressed by what I heard. Mr. Ramshaw is a Director of Vendetta Mining and he has been involved with the company since the beginning, helping keep the company focused on exploiting the compelling fundamentals in the zinc markets for several years now.
Mr. Ramshaw told me that "We looked at over 80 different projects" before ultimately settling on the Pegmont project in Queensland, Australia. This particular project fit the founding team's criteria because it is a development stage project with good local infrastructure. However, it offered a little something special as the Vendetta team saw something that others had missed: the potential to re-interpret the project's known geology.
The Pegmont project was just waiting for someone to come along with a more sophisticated understanding of the geology and set about creating new value. As Mr. Ramshaw said in our interview:
"Pegmont was believed to be a single lens, lead-dominant system. All the historical exploration in the upper part of the deposit was proving that concept. The lead-zinc ratios were 2.5:1 or even 3:1. It didn’t have the silver credit that other operations up there have and, as such, it lay dormant. When we looked at it, our technical team saw the potential for this to be a more standard ‘Broken Hill’ style deposit, where you can have multiple lenses. As you vector towards the original source of mineralization, you see an increase in the zinc grade and an overall increase in the zinc-lead ratio. Some historical holes indicated that was likely to be the case, but they hadn’t been followed up on -- certainly not to the extent of our program."
They've been busy since then and have discovered several new zones of mineralization. One of them, Zone 5, supports their geological model by showing higher grade intercepts at depth with more zinc. Another zone, the Burke Hinge Zone, shows that the target sulphide mineralization appears near surface. With these two discoveries in hand, Vendetta is significantly changing the understanding of the Pegmont project.
"We’re talking about an east-west strike length of the upper part of the deposit that is +1.5KM across. This isn’t necessarily something that is 100M thick – a lens that might be carrying mineralization may be 4-5M thick – but that is more than adequate mineralized thickness from a point of view of the underground mining methods that one might chose to employ should you develop a sufficient resource. "
The new understanding of the project that is taking shape is very much in line with Mr. Ramshaw's intentions of being in the right place at the right time in the next zinc bull market:
"A key feature of the Pegmont project is that it is almost entirely zinc and lead… That matters because the other metals may not necessarily follow suit. If you have a zinc-equivalent grade where your zinc-lead component is only half of your overall grade, then you have to look at the other metals and ask if those are going to be moving the same way as zinc and lead? If it’s not the case, then maybe that project doesn’t have the same leverage to the metals market that we feel a pure lead-zinc project like Pegmont has."
There may have even been a twist of fate in the story of Vendetta and Pegmont, as Mr. Ramshaw says: "The opportunity for us to acquire Pegmont became available because it was seen as a lead-rich system with limited silver credit, as opposed to what we have been able to identify it as." You have to be careful what you wish for and Vendetta's progress so far speaks to the opportunities that a focused and knowledge team can identify in the depths of a bear market.
It can be difficult to imagine what the next bull market will look like in the midst of tough times, but Mr. Ramshaw and the company have showed vision in that regard by thinking about the exit from day one:
"When we negotiated the deal, it was very important to consider proposed deal terms from the other side. We did not want to limit our ability on the M&A side. We needed to have something that was not just an acceptable earn-in for us, but also gave acceptable terms for any potential incoming group."
What may be the biggest challenge of a bear market is how to advance project without confounding dilution. As such, Mr. Ramshaw had some very interesting comments on the share structure of the company :
"Coming into this year we had 22 million shares out. Management and RCF owned close to 50% of those. Maybe we were a victim of being too tight but, more than anything, we were a victim of trying to advance something in a market that wasn’t listening. It wasn’t listening to any commodity, let’s face it. Things turned around this year and we bit the bullet with an equity financing. We knew that this project needed to be advanced on a certain timeline to take advantage of a lead-zinc market, not to take advantage of promoting ourselves in a rising lead-zinc market."
He goes on to say:
"We bit the bullet and did a financing earlier this year and our shares out went from 22 million to 72 million. The reality is that it was more of a quasi-rights offering. Of that $2.5M that we raised at $0.05 per share, which included a full warrant at $0.10, 60% of that was taken down by management, Resource Capital Funds, who maintained their position, Soliatrio Exploration Royalty, which is a Toronto and New York listed lead-zinc company that has a great asset down in Peru that took just under a 10% stake, and some Australian funds as well. Whilst we have been eating some paper over the last months – you can think the stock is in the safest possible hands, but you’re always going to have some selling – I think we’ve done a good job in a tough market to clear up that. The overhang isn’t as bad as one would normally expect with a company doing a five cent financing because so much of that went into the hands of existing institutions and management."
In short, the company took the money when it was available and have since put it to good use:
"Since acquiring the option for this project, we’ve done a little over 13,000 meters of drilling. None of that is included in the resource update. None of Zone 5, which still needs more drilling, is included in the resource update. None of the Burke Hinge Zone is, either. We’re anticipating to update the resource model in Q1 of next year, alongside met work."
We have already seen some of the results from this drilling activity, but there is more to come as the company starts to put it all together. Stay tuned for significant news.
For example, Mr. Ramshaw identified an important unknown feature of the Pegmont project that the company has set out to resolve it immediately:
"If there was an Achille’s Heel to this project, it is that we still don’t have that answer. You can have a slew of expert witnesses come and testify that there should be no issue with producing the differential con, but you still need to prove it. We’re actually conducting the metallurgical work right now because we want to address that from a public point of view."
In all, I was encouraged to hear that the company has a narrow focus for their role in making money off the project:
"We’re not portraying ourselves as miners here. Our goal is to develop an asset that, hopefully, has all the characteristics that make it attractive for someone who does want to mine it. At that point, all the benefits of the infrastructure, all the benefits of potential smelters, and the benefits of what we believe could be a smooth path on the permitting side, if there is such a thing, will come into play for someone else."
I was also encouraged that the company has a lot of upcoming news that could prove significant for the share price!
"The goal, now, is to advance the project to PEA by Q1 2018 and, at that point, to demonstrate on a public stage what we have already internalized. If we can hit our tonnage goals, then the economics of this project can be very attractive. Between now and then we need to do that work, demonstrate the metallurgical work, and continue to prove-up the tonnage on the back of the resource update in Q1. We will aggressively drill to try and coincide that PEA with what we believe will be the heart of this next cycle in lead and zinc."
I encourage you to visit company's website, follow discussion on the company's channel on CEO.CA, and read the full transcript of interview. Thank you, from Peter Bell.
