We are pleased to bring you a new Prosperity Stock Report Feature Profile!
As we have indicated previously, we are Bullish on Zinc and we believe we have found a compelling company to leverage this thesis. As a way to gain exposure to this sector we have identified a well capitalized pure play zinc exploration company that is backed by a WORLD CLASS TEAM.
Kootenay Zinc Corp. (ZNK – CSE | KTNNF – OTCQB | KYH – Frankfurt)
Following in the footsteps of mining giant Teck Cominco and their legendary Sullivan Zinc mine near Kimberly, BC, an experienced team of exploration and mining technicians are on the hunt for a potentially massive twin lead/zinc deposit.
The historic Sullivan Mine in Kimberley, B.C. is a prime example of a SEDEX (sedimentary exhalative) deposit and remains as one of the largest lead and zinc producers in the world. In its over 100 year lifetime, Sullivan produced approximately 150 million tonnes of ore, including approximately 300 million ounces of silver, eight million tonnes of zinc and eight million tonnes of lead. Together, these minerals are worth more than $50 billion when measured by today’s commodity prices. After 92 years of active production, the Sullivan Mine was closed in 2001.
Historical Photo of Miners at the Sullivan Mine
Zinc is arguably the most closely tied base metal to the Chinese economy. Zinc demand and prices are forecasted to rise well into 2020 and Goldman Sachs had termed Zinc as their “bullish exception in the metals space for 2016.”
Kootenay Zinc Corp. (ZNK – CSE | KTNNF – OTCQB | KYH – Frankfurt) is a junior mineral exploration and development company that is fully funded and focused on discovering large-scale sedimentary-exhalative deposits. Presently, the Company is actively exploring their marquee asset, “The Sully Project”, in search of a prolific SEDEX ore deposit similar to the historic Sullivan mine. Sully is located approximately 30 kilometres east of Kimberly, BC, and is 1,375 hectares in size. Sully overlies rocks of similar age and origin as those which host the world class Sullivan deposit. Previous exploratory work at Sully has identified interesting structural anomalies that have been the subject of much debate and follow up work. Detailed gravity surveys conducted over the past two decades have defined parallel near-vertical anomalies about 1 kilometre apart. Nine holes drilled to date have detailed much of the geology around the vicinity of the gravity anomalies but none have crossed the latest and most defined location of the likely cause. Now, the task at hand for the world-class team assembled by Kootenay Zinc is to figure out once and for all what, if any, minerals these massive anomalies contain.
Of course, this is junior exploration, which is the epitome of high-risk, high return investing! But, once-in-a-lifetime plays like this do not come around the corner very often. If upcoming drilling attempts prove successful, the upside potential for the stock could be of epic proportion. When evaluating junior explorers (and most early staged companies in general), we like to look at three main criteria: The Management Team, The Project and The Share Structure of the Company. These are the important factors to consider in order to mitigate the risk inherent in these upstart ventures. But first, before we dive into the specifics of the Company, we must ask ourselves, “Why Zinc?”
5 Year Zinc LME Warehouse Levels (Source: InfoMine.com)
The combination of demand driven growth coupled with supply shortfalls makes the outlook for zinc prices very compelling. Zinc LME warehouse levels are trending towards their five year lows.
As one of the most closely tied base metals to the Chinese economy, zinc demand and prices are forecasted to rise well into 2020 and beyond. With a new infrastructure plan that could see China spending many TRILLIONS on continued urbanization, it is little wonder why market pundits are waking up to the potential for looming zinc shortages. Further, as China’s middle class continues expanding at a rapid pace and purchases of items such as automobiles soar, zinc, which is used for galvanization (“rust-proofing”) of iron and steel, is a highly sought after commodity.
Closer to home, with newly elected President Trump and Canadian Prime Minister Justin Trudeau promoting their own versions of infrastructure spending programs, zinc could be showing heightened demand for the foreseeable future.
Refined Zinc Supply and Demand (Source: Wood Mackenzie)
On the supply side, various production curtailments have put the market on high alert. China, the worlds largest zinc producer, announced several lead and zinc mine closures in August of 2016 due to safety and environmental concerns. Shortly thereafter, Glencore, the Switzerland-based trading giant, announced a production cut in their zinc operations of 500,000 tonnes per year.
Zinc – Long Term Price Chart (Source: InfoMine.com)
Goldman Sachs has commented on these supply demand imbalances, forecasting a zinc shortage of 360,000 tons in 2017. Further Zinc price ascension could follow suit with the widening supply/demand deficit.
Both strategic players (such as foreign government entities), along with mining majors are on the lookout for new zinc assets. Exploration companies that are successful in identifying new economic resources of zinc will surely attract takeover attention as the macro forces continue to take shape.
You really can’t get much better than the team at Kootenay Zinc. The Company’s management, exploration team, and advisory board consists of leading mining executives that have been involved in world-class discoveries and the orchestration of corporate takeovers amounting to BILLIONS of dollars in value. It includes industry experts that have worked on mega-mining projects including the very project that Sully is being modeled after, Teck’s Sullivan Mine, and the infamous Voisey’s Bay projects. Not only do they have an exploration team with many years experience with SEDEX mineral deposits, they also have savvy business-men knowledgeable about the inner workings of the capital markets. After all, the “business” aspect of mining can be just as important as the actual exploration team.
Three senior geologists with deep knowledge about SEDEX deposits, lead the exploration plan on the Sully project:
Paul Ransom, worked for Teck at the Sullivan Mine for 33 years, has a thorough understanding of SEDEX deposits and has been hard at work searching for the Sullivan’s long lost twin sister.
Dr. David Broughton is a world class exploration geologist that brings a fresh outlook to the Sully project with expertise second to none in sedimentary mineralization. He oversaw the major discoveries of Kamoa and Flatreef during his time with Ivanhoe Mines (Robert Friedland). As a testament to his success in the exploration field, The Prospectors & Developers Association of Canada (PDAC) has honoured Dr. Broughton with the prestigious Thayer Lindsley Award.
Brian Jones, who was instrumental in finding one of Canada’s most famous discoveries, the Voisey’s Bay nickel mine, is a geophysics and noted gravity expert.
The Advisory Board ads three superstar corporate executives and deal makers to the fold.
Peter Meredith has been a director of Ivanhoe Mines Ltd. (formerly, Ivanplats Limited) since May, 1998 and is the former Deputy Chairman and Chief Financial Officer of Ivanhoe Mines Ltd. (now Turquoise Hill Resources Ltd.), where he was involved in overseeing Ivanhoe’s business development and corporate relations.
Jonathan Rubenstein is the Chairman of Mag Silver Corp, a director of Detour Gold Corp, and a director of Eldorado Gold Corp. In 2001, Mr. Rubenstein was one of the founders of Canico Resources Corp, where he served as a Director, Vice President & Corporate Secretary as the company acquired, explored and developed its Onca Puma nickel deposit in Brazil. Mr. Rubenstein was instrumental in the negotiations for the 2005 acquisition of Canico by CVRD of Brazil for $941 million. Also, as vice president, corporate affairs for Sutton Resources, he played a key role in negotiating the $525 million takeover of that company by Barrick Gold Corp. in 1999.
Stuart (Tookie) Angus is an independent business advisor to the mining industry. Mr. Angus is the former chairman of the board of B.C. Sugar Refinery Ltd. He was a director of First Quantum Minerals until June, 2005, and a director of Canico Resources Corp until its $941 million takeover by CVRD in 2005. Tookie was also a director of Bema Gold until its $3 billion takeover by Kinross Gold in 2007. More recently, he was managing director of mergers and acquisitions for Frank Guistra’s Endeavour Financial, and a director of Ventana Gold until its takeover by AUX Canada Acquisition in 2011 for approximately $1.4 billion, and a director of Plutonic Power until its merger with Magma Energy in 2011. He is currently chairman of Nevsun Resources Ltd., which operates one of the highest-grade open-pit copper mines in the world.
With the backing of industry heavyweights like these to draw upon we are comfortable betting on this team and feel that their chances for success are high.
In a recent news release Dr. David Broughton, Senior Technical Advisor of Kootenay Zinc Corp. summarized the project to date, “The coincidence of multiple large gravity anomalies with strata of Sullivan-equivalent time makes the Sully project very compelling. The project team has advanced geophysical exploration and drilling in a systematic, thoughtful and efficient way, and appears to be closing-in on discovering the source of the gravity anomalies.”
The Sully Project (source: Kootenay Zinc Corp.)
The Sully Project is located near Fort Steel, in the East Kootenay’s of British Columbia. It is 30 kilometers east of Teck’s past-producing Sullivan mine at Kimberley, B.C. The world-class Sullivan ore body was a sedimentary exhalative deposit which forms by hot springs deep within an ancient sedimentary basin. SEDEX deposits are known to be very large and rich in base metals, like lead and zinc, and are known to occur in southeastern British Columbia which is part of the Aldridge Basin, an ancient sea bed.
With more advanced exploration technology and techniques at their disposal, the Kootenay technical team feels they have a much better understanding of the Sully project than past explorers. By taking a thoughtful and systematic approach and incorporating past and current data, they now understand why previous explorers and drill holes were unsuccessful. With advanced technology, the team has improved the resolution and definition of the gravity anomaly, and have concluded there is not one, but two large anomalies present at Sully. Additional gravity mapping along with other exploration work has outlined well-defined targets for drilling that will be followed up on during the spring/summer drilling campaign. News flow should be robust as ZNK actively works the Sully project in the prime months ahead.
Why does the exploration team feel it might have a SEDEX deposit on their hands?
- Two massive (Sullivan like) sized anomalies have been identified through gravity mapping.
- Filtered AeroMag anomalies near-coincident with the gravity anomalies.
- Extensive soil samples contain concentrations of lead and zinc.
- Equivalent level of strata at Sully and at the Sullivan ore body.
- East mass target demonstrated to be hosted at Sullivan time equivalent stratigraphy.
- Geochem data shows anomalous zinc and lead in soil.
- A temperature reading down the last drill hole showed hotter temperatures near the deposit with a stronger magnetic pull.
- Previous drill holes may have intersected fragmentals which indicate if the hole is close to the mound or the crustal weakness that fluids entered to create the deposit.
The Share Structure:
Kootenay Zinc is a relatively new company that has been well structured from a capital markets perspective. The Company has completed two oversubscribed financings to date raising a total of over $4mm to fund operations. As a testament to their support and belief in the company, early shareholders in the initial private placement have recently entered into a voluntary pooling agreement whereby their shares will be released in four separate tranches (25% released per tranche) until August 31st of this year. Currently, in total, there are just under 39 million common shares issued and outstanding (basic). However, the combination of the recent stock pooling agreement and the fact that Kootenay’s last private placement financing is still locked up under the mandatory 4 month hold period, the actual freely tradable float is a small fraction of the total share count. At present, we estimate there to be less than 9 million shares in the public float. As such, any sniff of a successful drilling campaign could be explosive for this low float stock.
Kootenay Zinc Corp – Stock Chart (Source: StockWatch.com)
As of late, Kootenay Zinc has been trading in the range of $0.40 – $0.60 CDN with a year high of $0.70. Trading volume has also been slowly picking up in recent weeks with a 20 day average volume of just over 80,000 shares. So far, the Company is still relatively under the radar with investors. With an active exploration program ahead and the news flow to follow we wouldn’t be surprised to see this stock gaining more attention and momentum over the near term.
In Summary – The Kootenay Zinc Opportunity:
All things considered, we believe that Kootenay Zinc offers homerun potential. Keep in mind; this is high-risk mineral exploration! It’s a near binary outcome – either you find the mother lode or you don’t. But, for those investors who are looking for leveraged exposure to the zinc market and possess a healthy appetite for risk we can’t think of a better opportunity in the space.
As an investor you’d be hard pressed to find another Company in this sector with the upside potential of Kootenay Zinc:
- The advisory board, management and technical teams are second to none. It is difficult (if not near impossible) to attract the combined experience and geological expertise to a junior exploration company. They have skin in the game and are incentivized to make this a big success for all shareholders.
- It has a great project that could be the twin sister of Teck’s famous Sullivan project in Kimberley, BC, and is likely the reason the Company has been able to attract such talent (see point 1). Industry heavyweights don’t waste their time with nonsense no-upside projects.
- The capital structure of the Company is fantastic. They are well capitalized and there is currently a relatively low float of only +/- 9 million shares.
- Commodity markets, especially zinc, are lining up for an extended run. Supply demand imbalances in the zinc market provide tailwinds for exploration and development companies in this sector.
Our top Zinc exploration pick for 2017 is Kootenay Zinc Corp.
Kootenay Zinc Corp. (ZNK – CSE | KTNNF – OTCQB | KYH – Frankfurt)
The Prosperity Stock Report Team
Disclosure: We hold an equity position in Kootenay Zinc Corp and have been paid a consulting fee.
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