TD Broker Commentary - 4 March TD Broker on Zenyatta
o WebBroker Alert ======================== PDAC-Zenyatta makes bull run on rare graphite deposit Thomson Reuters * Top performing mining issuer in 2012 on TSX-V * Company says has rare vein type graphite deposit * Targets higher value synthetic graphite market * Resource estimate due in Sept., prefeasibility in 2014 By Julie Gordon TORONTO, March 3 (Reuters) - Zenyatta Ventures Ltd, the top performing mining issuer on TSX Venture Exchange in 2012, is banking on a rare type of natural graphite that it says can compete on a quality level with synthetic graphite, while costing much cheaper to produce. The Thunder Bay, Ontario-based company is in the very early stages of developing its Albany project in northern Ontario, a vein-type graphite deposit. Vein graphite, also known as lump graphite, is currently only produced in Sri Lanka. The unique nature of the project has already captured the market's attention. Zenyatta's stock quintupled in value from 14.5 Canadian cents to 79 Canadian cents in 2012. In that same period, the broader S&P/TSX Venture Composite Index fell more than 17 percent.Extending its bull run, the stock has nearly tripled in value so far this year to close at C$2.14 on Friday. "People recognize, even in a bad market, that certain things look amazingly good," Chief Executive Aubrey Eveleigh told Reuters ahead of the Prospectors and Developers Association of Canada convention, which started on Sunday. "What we pulled out here was extremely rare. The last time one of these was found was probably 200 years ago. People recognize that." Graphite has gained popular attention in recent years mainly due to the development of graphene, the world's strongest and thinnest material, and for its use in advanced lithium-ion batteries to power tablets, smartphones and hybrid vehicles. While the technology applications get the most attention, graphite - which is highly conductive and can withstand intense heat - is primarily used in steelmaking and metal work.
There are three basic types of natural graphite -
amorphous, ake and vein. Amorphous graphite is the lowest
quality and most abundant, while vein type is the rarest and
most valuable.
Synthetic graphite, a man-made material prized for its
consistency and quality, is the most valuable, though it is
expensive to produce.
Zenyatta says that because its ore is naturally "cleaner"
than most deposits, it can produce 99.96 percent pure graphite
through a single crush and floatation circuit, followed by a
relatively short leaching process. So far, the company has only
proven the process on a bench scale.
While he would not give exact numbers on costs, Eveleigh
said that because the refining process is so simple, Zenyatta
can produce create high-purity graphite for just a fraction of
the cost of synthetic graphite.
Synthetic costs around $4,000-$5,000 a tonne to produce and
sells for around $7,000-$9,000 a tonne, while ultra high-purity
graphite can sell for $20,000 a tonne, the company said.
Zenyatta expects to be able to produce around 100,000 tonnes
of high-purity graphite a year from its Albany project, which is
in some 1,000 kilometers (620 miles) northwest of Toronto.
That is well above Sri Lanka's annual output of some 4,000
tonnes a year. To be sure, Zenyatta is still in the early days
of development work, with its first resource estimate expected
in September and a prefeasibility study due in early 2014.
MYSTERY METAL
The Zenyatta team discovered the graphite deposit by
accident while surveying for copper and nickel. At first the
company wasn't sure what it had found.
"We thought it was massive sulphides - copper nickel. We
drilled into it, pulled out the core and I didn't know what it
was," said Eveleigh. "I've been in the business for 30 years and
I'd never seen anything like it."
They ended taking samples to a local university where it was
tested using a powerful electron microscope and eventually
identified as hydro-thermal, or vein, graphite.
With demand steadily rising, a swath of junior mining
companies have popped up in recent years, with most promoting
flake graphite deposits in Canada and around the world.
Zenyatta says it is unique in that its project is the
largest, and only new, vein-type graphite deposit in the world.
"If there's 100 companies out there with graphite projects
right now, 99 of them have flake and there's one with
hydro-thermal or vein type," said Eveleigh.
CASHED UP
With some C$5.5 million in cash on hand, and another C$7
million expected from outstanding warrants, Eveleigh said the
company has all the funds it needs to get through to a
production decision.
Having proven its process on the bench scale, the next step
is to ramp up to a pilot plant study, and provide potential
customers with sample material. Zenyatta is also completing
drill work on its deposit.
The plan is to build an open-pit mine, with the option of
eventually going underground. Because the deposit is near
existing infrastructure, Zenyatta expects capital costs to be
around $150 million, in line with other graphite projects.
While a construction decision is still at least a couple of
years away, the company is already considering the merits of a
strategic partnership, or a deal with an end user.
"We're been approached by many end users globally - out of
Europe, out of Asia, out of the U.S.," said Eveleigh. "These
things could materialize into a strategic partner or buyout. If
not, there's enough value here - I don't think we'll have any
issues raising money to put it into production."
Cliffs Natural Resources Inc holds a 12.75 percent
stake in Zenyatta, according to Thomson Reuters data.
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