Freedom of Expression Hello everyone on the Zen board. I have never posted on any bull board before but I’ve been following this board closely for the last few months. I am a professional geologist with a PhD and over 25 years of experience (mainly in the oil patch) so I have done my own geological due diligence on ZEN which I am happy to share on this board.
I am currently semi-retired and have been investing for myself for the last 10 y or so. I am long ZEN and see it as a very rare investment opportunity: low risk yet high reward.
As you will see my calculation of the in situ graphite resource in the richest graphite zones established so far by drilling (I call these “sweet-spots”) translates to a value per share for ZEN of over $80. ZEN closed today (6 June 2013) at $2.36.
To summarize the results of the work I will present below, I estimate that drilling to date (up to and including the #11 borehole) has established that the East Pipe sweet-spot contains 0.47 million tonnes of graphite (from 20 million tonnes of ore) and the West Pipe sweet-spot contains 0.34 million tonnes (from 33 million tonnes of ore). Hence ZEN has established 0.81 million tonnes of ultra-pure vein graphite in the sweet-spots of both pipes combined. At just $6,000 per tonne this yields a value of $4.9 billion. Divide $4.9 billion by the 58.9 million shares outstanding and this gives a value per ZEN share of $82.53.
My approach to estimating the value of the Albany deposit is a little different to any I have seen presented so far, so I will explain what I have done step by step. I have adopted an ‘old school’ approach in which I have been conservative at every step but I believe I have utilized all the hard information that has been released so far. Please go through the material below and give me your critiques. I will be happy to try to defend my method.
Figure a in my presentation is the most recent news release from ZEN which provides general background to the Albany deposit and summarizes current activity. Having read this we will all be up to date and hence ‘on the same page’ as we proceed.
My approach is as follows:
1. For each borehole drilled (for which data have been released by Zenyatta) I have calculated the weighted average graphite grade over the entire borehole length starting at the base of the limestone cap. In the West Pipe this includes the #1, #2 and #3 boreholes. In the East Pipe it includes the #4, #5, #8, #9, #10 and #11 boreholes. There are 4 different rock types that have been encountered: hydrothermal breccia with vein graphite with a measured graphite grade (ranging so far from 2.1% to 7.4% graphite); graphite-overprinted syenite – let’s call it simply “overprint” for which no grades have been given (I’ve assumed 0.5% graphite for this rock type where it occurs within sweet-spots); barren granite (0% graphite) and finally mafic dyke (this has only been identified in hole #11 so far) to which I also assigned 0% graphite. What is the weighted average you might ask, and how is it calculated? Let’s say a borehole drills through 100 m of barren granite then penetrates 100 m of breccia with 5% graphite. The weighted average graphite grade is calculated as [ (interval length x grade) + (interval length x grade) ] / sum of interval lengths . Thus [ (100 x 0% ) + (100 x 5%) ] / 200 yields 500% / 200 or 2.5% over the entire 200 m interval. The weighted average grade is essentially the amount of graphite you would get if you crushed the entire length of borehole core, washed it in caustic soda, to dissolve the quartz and feldspar, and floated the graphite to the surface (which is exactly what will be done to the ore once mining starts). My calculations give the following weighted averages for the boreholes with pay released so far. For the West Pipe wells: #1 = 1.4% graphite over 466 m, #2 = 0.4% over 457 m, #3 = 1.3% over 435 m. Please see Figure b for the West Pipe borehole data. For the East Pipe wells: #4 = 1.0% over 134 m, #5 = 4.1% over 285 m, #8 = 0.1% over 315 m, #9 = 3.1 % over 368 m, #10 = 5.1% over 360 m and finally #11 = 1.1% over 625 m. See Figure c for the East Pipe borehole data.
2. Next I calculate the weighted average grade for each pipe based on the available well data. For the West Pipe the weighted average graphite grade based on the 3 boreholes released to date is 1.04% graphite over a cumulative drilled length of 1359 m. For the East Pipe (where current drilling is focused), the weighted average grade for the 6 boreholes released to date is 2.38% graphite over a cumulative drilled length of 2088 m. Again see Figures b and c for the tabulated data and the calculated weighted average grade for each pipe.
3. Next I defined a “sweet-spot” for each pipe. See Figure d for a visual image of the West Pipe sweet-spot and Figure e for the East Pipe. I’ll go through my methodology for the East Pipe and then give you the results for both East and West. My sweet-spots are defined as the rock volume within which hydrothermal breccia with vein graphite with a measured graphite grade has been encountered. In the East Pipe (see Figure e) my sweet-spot measures 125 m from S-N. It is essentially occupies the southern third of the East Pipe cross-section centred below the #4 and #5 well heads. I next assumed that the sweet-spot extends 125 m in an E-W direction (62.5 m on either side of the line of section), so in map view (see Figures f, g and h), my East Pipe sweet-spot covers a small square 125 m x 125 m which is centred roughly on the #4 and #5 boreholes surface location. As shown on Figure h, the East Pipe sweet-spot occupies approx. one-third of the area of the newly-defined strong conductivity anomaly recently released by ZEN (the Crone ground survey). So what I am presenting here is probably a very conservative measured resource estimate. To define a rock volume we need a depth dimension as well. As shown on Figure e, the #11 well encountered 10 m of pay at a TVD (true vertical depth) of 500 m below the base of the limestone cap, so my sweet-spot for the East Pipe has been proven by drilling to extend at least this deep. I have thus defined a sweet-spot rock volume for the East Pipe measuring 125 m x 125 m x 500 m deep with a weighted average grade of 2.38% graphite. Following a similar procedure for the West Pipe (see Figure d) I have defined a sweet-spot measuring 265 m (N-S) x 125 m (E-W) x 400 m true vertical depth. The West Pipe sweet-spot occupies the northern half of the c-sec on Figure d, extending approx. from the #1 across to the #3 wellhead. In map view it occupies less than half of the newly-defined very strong anomaly recently released by ZEN, so again my resource estimate here is conservative and will probably increase with further drilling. The #1 borehole encountered graphite-rich breccia at a TVD of 400 m. So the West Pipe contains a sweet-spot rock volume measuring 265 m x 125 m x 400 m with a weighted avg grade of 1.04% graphite.
4. The next step is to calculate how much graphite the sweet-spots contain. In Figure i, I have tabulated my graphite resource estimate for the East and West pipes. I’ll give a detailed discussion for the East Pipe then summarize the West Pipe, then add them together. Here we go! The East Pipe sweet-spot is 125x125x500 m = 7,812,500 m3 of ore. I assume an ore density of 2,500 kg/m3, so we have 19,531,250,000 kg of ore. Since 1 tonne = 1,000 kg, we have 19.53 million tonnes of ore in the East Pipe sweet-spot. As discussed above, the currently established weighted average grade of graphite in the East Pipe sweet-spot is 2.38% graphite. Hence we have established 0.47 million tonnes of graphite in the East Pipe sweet-spot. Following a similar procedure, the West Pipe sweet-spot contains 0.34 million tonnes of graphite. In total, the two sweet-spots contain 0.81 million tonnes of graphite.
5. What does this mean for ZEN stock you ask? In the last stage of this presentation, I estimate the value of the graphite in these two sweet-spots, then divide that value by the total number of ZEN shares (fully diluted) to yield a very conservative value per share estimate for the Albany deposit, at its present state of drilling. So, first multiply 0.86 million tonnes of graphite by whatever price you think is reasonable for the ultra-pure graphite we know the Albany deposit contains. I used a price of $6,000 per tonne which yields a value of $4.86 billion . Divide that by the number of ZEN shares outstanding (58.9 million according to the ZEN website) and the in situ value of the graphite established by drilling to date is a hefty $82.53 per ZEN share. Please see Figure j for the tabulated value estimate. Whatever capex and operating costs the company faces in the months and years ahead, the current share price (testing resistance at $2.50) is “cheap like borscht”.
Please note, my resource estimate is conservative for a number of reasons including these:
· Both pipes remain open at depth (see Figures d and e). This means that the ultimate depth of graphite mineralization is currently unknown. It is highly probable that deeper drilling will prove more graphite veining below the current LKD (lowest known depth) expanding the resource.
· The strong conductivity anomalies mapped in the recent Crone ground survey (see Figure h) are significantly larger than the sweet-spot’s I have considered. This suggests that future drilling will prove graphite mineralization extends laterally well beyond the area’s I have considered
· In considering only the sweet-spots I have made no estimate of the value of the significant rock volumes already established by drilling that so far contain graphite “overprint” or graphite-overprinted syenite as it is referred to in the latest news release. (Is it granite or syenite?...for the geologists involved, get ur news releases together ZEN!) LOL. Anyway, this “graphite overprint” ore will almost certainly be mined along with the higher grade vein graphite, and that will yield significant pay additional to my estimate in this presentation.
Please note also that my resource value estimate (Figure j) is also highly conservative given that I have used a market price of $6,000/tonne whereas the true value of the Albany graphite will presumably be at the mid-high end of the ‘synthetic graphite’ range which is $8,000-$30,000/tonne.
The last 2 slides in my presentation (Figure L and Figure m) are the 6-mo and 2-y ZEN stock charts from StockChart.com. Currently the stock is pushing up against resistance at $2.50. Where will it be 6 mo from now?
I look forward to getting reactions and critique from anyone one this board, but especially from The_Chief and/or hoov? Maybe I’ve made some crazy error? If so, I would like to know about it asap.
GLTA,
9 June 2013
PS I'll post the figures for my presentation in subsequent posts