Fireweed CEO @Brandon Macdonald

For full disclosure, I’m a past Fireweed Zinc shareholder but I moved on near the beginning of 2019. I didn’t like where I felt the zinc space was heading and felt strongly enough about that I didn’t just want to ride it out. I sometimes feel a bit bad about doing that but I have learned to follow my gut when it’s speaking to me. I moved on with an eye to possible re-entry at some point. I have a lot of respect for this management team’s ability to steer this project and move it forward. I think they’ve done a nice job thus far. They’ve been able to raise money with little difficulty and successfully manage their drill programs in the Yukon. The drill programs have expanded the project and where they’ve twinned historical holes, Fireweed has generally managed to produce much higher grades using modern techniques.

I think most of us know that the project isn’t necessarily a slam dunk. Tom and Jason are quite large and of nice grade (50 MT combined indicated & inferred at just below 10% ZnEq) but there is a notable distance from the project in the eastern Yukon to tidewater. Plus, the capex isn’t small – you have to be aware of the $400m number. It takes money to operate up north and the conditions can be brutal. It is reassuring that the territorial government has shown a willingness to work with mining projects but this project is more remote and away from existing infrastructure than many others. They need to make their project viable enough that any money spent up front is worth it in return for potentially as much as several decades worth of mining operations. It’s big but they are working to optimize by developing the mine plan in a way that makes the most sense.

There is a small recent win on the government assistance front already though. The Yukon government installed three new bridges on North Canol Road this summer and have delivered three more which are available for installation in 2020. As Brandon Macdonald noted on this website this week, “the bridges the gov is putting in now are fit for purpose for our longer term needs, and those were priced into the capex of the PEA.” He also notes that “as to longer term discussions about full gov support, those are ongoing.” Any assistance there is going to be very helpful to this project’s bottom line. I do not expect any news on that front in the near future though.

Why am I writing about Fireweed now? Well, for one, at Friday’s close the market cap is $18.66m CAD. It’s possible the stock recently bottomed out in the ~45 cent range. That is a pretty ugly chart since summer 2018. Tough to say anything to the contrary. But – maybe there is an opportunity, with minimal downside?

Zinc pricing is on the upswing, currently trading at $1.12 after bottoming out at $1.00 as shown below. It is still trading below the assumptions in the PEA though.

Why is zinc pricing improving? I have not done the kind of deep dive required to understand the supply and demand equations. I don’t have time, unfortunately. There were concerns in the spring about the higher prices of zinc leading to a supply glut. Well, you can see in the next chart that while LME warehouse levels doubled, they’ve since dropped off to 61,275 tonnes, not that much higher than the 5 year lows. I should also look at the Shanghai inventories as well. I see a current figure of around 103,491 tonnes (deliverable and on warrant) on the Shanghai Futures exchange website. The combined total of 164,766 tonnes isn’t much in the context of comparing to where Zinc inventories were five years ago. I understand there is a bit of supply floating around elsewhere but those are the most prominent locations as I know it.

In saying all this, I’m not saying Fireweed is the short term answer to lower supply levels. It isn’t. All I’m saying is that the backdrop for investing in Fireweed is possibly not going to be waylaid in the short term by the economic backdrop for its main metal.

What else has changed about Fireweed that I’m digging into it on a sunny Saturday afternoon. I think many know the story of Tom & Jason (largely positive) and have read its PEA and know there are still ways to optimize it and that Fireweed is trying to do that. 

You may or may not have noticed that they released a drill hole this week with some nice intercepts at the Boundary Zone - this is the project northwest of Tom and Jason which they picked up in late 2018 from Teck. The highlight of NB19-001 was, for me, the 23.31 metres of 16.35% Zinc which begins 93m downhole. That’s really excellent. The headline also noted that the hole was 250m true width with 3.44% Zinc. Of note, there is virtually no lead in this hole (Sphalerite-siderite-pyrite with minor galena) until you get 226m downhole into the second high grade intercept.

The good news is “Boundary Zone has potential to be mined in an open pit with a low strip ratio and to be upgraded through low cost, pre‑concentration ore sorting processes.” I always dig further on a statement like that. Here’s the table of the first 117m which is what interests me most for now. It looks like about 20m of mineralization at an average of 7.15% zinc, within a total interval from surface of 93m. (true widths not yet known)

That doesn’t seem very impressive at first glance but you can’t really look at it like “they need to get 93m down to the high grade material” as the ground above Boundary is sloping and it’s not like these holes were drilled at a 90 degree angle – see attached cross section below for a bit of an indication of what I mean. You don’t have to clear away 93m of material to get to the good stuff. Some of it is possibly at surface based on the drawing. Any attempt to mine Boundary would start there, I’d guess.

I should note that the hole is technically infill as NB19-001 was drilled 45m away from a historic hole to fill a gap in historic drilling. For anyone looking at the holes and thinking 45m between holes is a long way and it can’t be trusted, you should bear in mind that spacing on SEDEX deposits is widened due to the generally predictable nature of the mineralization. This isn’t your two metre wide gold vein that needs to be drilled in tight. It’s totally different. Also note that NB19-002 is still to come and I would expect a narrower high grade zone from that hole based on the drawing below (the thinnest green ribbon narrows where 002 hits it). Also note there are 24 historic holes already into Boundary, the highlight being 224m of 2.5% Zn, including 4.5m of 16.4% Zn. That intercept was a bit of precursor to this week’s hole.

Anyway, I’m not doing a study on what is economic here – I’m not certified to do anything like that. I just wanted to see what the potential looks like. For now, I know that they have likely produced two nice new holes at Boundary and they will gather data on ore sorting and do metallurgical testing. Brandon mentioned this week that he “think(s) Boundary would be a focus of the 2020 program. Getting a resource on it and integrating it into an economic study would be a real game changer.”

He also noted later that there are “no immediate plans for a PEA, but I think given the results at Tom and Jason, and the possibility to include End Zone and Boundary Zone, there is a strong possibility we work towards a new PEA after next summer's drilling.”

Next summer is a long time away and we will undoubtedly see a cash raise this winter as it seems to take around ~$3-5 million to do justice to a drill program up north. The Boundary drilling likely helps the case for Brandon when speaking to prospective investors and that is a good thing. I won’t BS anyone and say I think you have to buy FWZ right now, because it’s about to run up. You don’t – everyone who knows this story well knows that the drilling stops in the early fall at the latest and resumes in the late spring. I just want to share my thoughts from a couple hours spent digging into the story. I think the downside is minimal given the economic backdrop for Zinc. One other thing I should mention is that a well known newsletter told its subscribers to sell their shares near the end of summer which might have helped contribute to the dip to 45 cents. The newsletter was not interested in the zinc space anymore rather than having any issues with Fireweed itself. We will perhaps see some tax loss selling too but that might have happened for some people already. I think buying dips is a good plan here if one can deal with a timeline of more than a few months.

43% of FWZ shares are owned by management and close associates, 10% by each of Teck and HudBay and funds own 19%. That leaves 18% of the fully diluted share count of 44.4m shares in the hands of “other” which I take as retail. That share structure is still very low and is a large plus here.

If Fireweed fails to get into production someday, I don’t think it will be because of Brandon’s efforts. He is working hard and has every incentive to keep doing so. This is a professional outfit. I have taken a small position and will likely dip my toes in the water from time to time.