Contributor Mark Bunting interviews the Chairman of Darnley Bay Resources Limited (CVE:DBL), a Northwest Territories zinc play attracting some smart money
Mark Bunting | April 17, 2017 | SmallCapPower: The early incarnations of what are now Thomson Creek Metals, B2Gold and Goldcorp have one thing in common. Kerry Knoll.
Mr. Knoll is known as man who gets mines built, builds companies that get sold, and makes shareholders millions of dollars. He’s currently planning to repeat the process as the chairman and executive director of Darnley Bay Resources Limited (TSXV: DBL), which was the best performing stock on the Venture Exchange in 2016, and is higher by more than 1700% in the last year. The Company has a market cap of about $50 million.
Investors are excited about Darnley Bay’s zinc mine in the Northwest Territories, its management team, and the fact that smart mining money owns significant stakes in the company. Rob McEwen, chair and CEO of McEwen Mining, Lukas Lundin of the Lundin mining dynasty, and Pat DiCapo of PowerOne Capital have all taken an interest in Darnley Bay. Insiders own about 40 per cent of the shares.
The Pine Point mine was once a thriving lead/zinc operation run by Cominco, which was eventually absorbed by Teck Resources. A combination of low prices and better opportunities elsewhere led to a shutdown in 1987. Cominco left 60 deposits behind, most of them undeveloped. Nearly 30 years later, with the mining sector turning the corner after a multi-year downturn, and zinc prices in good shape, Mr. Knoll and his team saw an opportunity.
Darnley Bay’s timeline is to start production in the fourth quarter of 2019. The Company’s Preliminary Economic Assessment …. Mr. Knoll says the Company will have to raise money this spring to finance the feasibility study, and then raise more money next year, through debt and equity, to pay for the construction of Pine Point.
Capital Ideas Research interviewed Mr. Knoll about the Company’s flagship mine, the keys to bringing a mine to production, the prospects for zinc, and what he’s learned after 35 years in the mining business.
Here’s our conversation with Mr. Knoll.
Mark Bunting (MB): Give us an overview of the history of Pine Point and what you think you’re sitting on there.
Kerry Knoll (KK): Pine Point is an old mining camp. There’s been more than a hundred deposits discovered in that area and well over a hundred million tonnes, so it’s big and it’s rich. It was in production for 23 years, built by Cominco. They built not just a town, but a town of 2,000 people. They worked with the government to build a hydro-electric power plant. The government of Canada built an 800-kilometre railroad to the town to be able to ship the concentrate out, which is a huge benefit to us. It was a mega project for its time. It was really part of the government’s plan to open up the Canadian north.
They (Cominco) left behind about 60 deposits, 54 of those totally undeveloped. They had a grade of 10 per cent combined lead/zinc, and they left behind anything under seven per cent so our stuff, of the 54 undeveloped deposits that we have, we’ve chosen 11 of them, and of those 11 the grades vary from three per cent combined lead/zinc all the way up to 16 per cent, and they average around six-to-seven per cent. It’s a good grade. At today’s metal prices with today’s mining technology, we can make a tidy sum mining these deposits.
At 95 cent zinc, they came out with an IRR (internal rate of return) of about 35 per cent, which is a really good number, and this is really why we bought the project, because we think that, by tweaking it a little bit and looking at a slightly higher zinc price, that IRR is going to go up to between 50 and 60 per cent, at least that’s our hope.
MB: What are some of the lessons you’ve learned over the years as far as getting mines to production? Every mine is different so what are the keys, and what are the risks?
KK: It’s getting things done quickly. It’s not wasting time and doing yet another study and another study. It’s doing the study right. That’s one of the keys, and I guess the biggest point, once you’ve got a good project, is your people. I learned that early on in my career that if you don’t have the best people, it’s not going to work. Every mine is different. Every construction of a mine takes on a life of its own, and you don’t get it done without the top people in the business.
MB: It’s often said that zinc is the best-looking base metal right now in terms of fundamentals. Do you agree?
KK: You’ve got a shortage of concentrate so the smelters are having trouble to get enough concentrate to operate. Some of the ones that were relying on the spot market have had to close from time to time. One of the reasons is the treatment charge for a ton of concentrate has gone from about $200 a tonne down to $50 on the spot price so they can’t make any money. This is mainly happening in China.
What we see, and are very excited about, is this coming summer the stockpiles the world has been relying on to make up the difference for the material that’s not going through the smelters — the stockpiles are getting used up fast. I’ve read various reports saying that as early as June and as late as August that these stockpiles will be virtually depleted, and at that point we get into a shortage.
The shortage is looming. There’s no replacement in sight. Unless car sales somehow take a huge tumble in the next couple of months, which I don’t really see happening. Every year, except 2009, in the last 20 years has set a new world record for car sales so I don’t think that’s going to happen. I’m excited about the coming year in terms of zinc prices.
(About half of global zinc production is used in the auto sector to protect steel and iron from rusting.)
MB: What does it mean to you and the company that you’ve got some smart money people involved like Rob McEwen?
KK: Rob was our very first presentation and he said, subject to a bit of due diligence, put me down for a million bucks, which was great start, and then we had Pat DiCapo from PowerOne — he got behind us. Then Lukas Lundin’s family brought some money in once they heard the story and they realized that this was a good zinc story. These are the people who know how to build a mine, this stock’s going up, and they were right.
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Mark Bunting is a host at Bloomberg TV Canada, and the publisher of Capital Ideas Digest, a weekly compilation of actionable investment ideas drawn from a wide variety of research reports, data and newsletters. Try it now to get your first month for free. capitalideasresearch.com
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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