TSX Venture Exchange: CMB
Frankfurt: ZM5.F Shares Outstanding: 34,545,819
Insider Ownership (10/13/2016): Approx. 25%
CMC Metals (CMB:TSX Venture Exchange) is an emerging Canadian junior mining company whose strategy is to acquire and develop past producing mines, then rehabilitate and put them back in production, thus generating dilution-free cash flow for shareholders. Further areas
The slump in the precious metals market (2010-2015) has created an opportunity for management to capitalize on the glut of small-mid sized mining operations, which have shut down due to low metal prices of the past decades.
This has created a niche for small to mid-size properties that are economic for development but below large mining companies required criteria. CMC views this as an excellent opportunity to acquire and develop properties that are economic on a small to mid-size mine development scenario. Advantages of small to mid-size mine developments include quicker permitting process, smaller environmental foot print, less start-up capital required, flexibility of semi-mobile milling, efficient leveraging of equipment capital at a number of properties, and reduced labour management requirements.
The Radcliff mine was initially discovered in 1896, where 25,000 oz of high grade gold was extracted over a 10 year period. Modern exploration began in 1989, and since that time approximately $15 million has been spent rehabilitating the mine.
CMC acquired a 50% interest in the mine from Pruett-Ballarat Inc. ("PBI"), in 2011. Since then several million dollars have been spent bringing the mine to project readiness, including environmental and safety compliance, equipment upgrades, etc.
The Radcliff Mine currently features a total resource of 300,000 oz Gold at an average grade of 3 g/t (an attractive grade for an open pit operation). Approximately 84,000 oz of gold (valued at $101 million USD @ $1,200 Gold) are located in high grade “gold pods” within this deposit, averaging 22 g/t! The immediate plan is to extract high grade ore from the first gold pod, which contains about 24,000 ounces of gold in 22,000 tons of rock. This is anticipated to take 1.5 years to complete, generating nearly $30,000,000 in revenue at $1,200/oz gold. The other gold pods are nearby (100-150m from pod #1), and will be mined out following completion of Pod #1.
Bishop Mill is 100% owned by CMC Metals, and is located nearby the Radcliff Mine. Over and above cash flow from Radcliff, the mill will generate revenue by processing mineralized ore from nearby small-scale operations. The mill has been rehabilitated, upgraded, permitted and staffed. Current capacity stands at 100 tpd (tonnes per day) ore processing, at approx $150/t. At current capacity, the company stands to generate upwards of $3.5 million/year in revenue. THE MILL CAN BE EXPANDED TO OPERATE AT 1000 TPD, INCREASING REVENUE POTENTIAL 10 FOLD TO $35 MILLION ANNUALLY. Negotiations are ongoing to process ore from local small-mid scale mining operations.
Silver Hart Mine
The Silver Hart Mine contains very high silver grades and significant base metal credits. Silver Hart consists of a number of high concentration zones (KL, M, S and TM), veins, where grades over 54 kg/t Ag have been seen in drill cores. There is an existing NI 43 calculation for Silver Hart, but it is underestimating the reality since it does not take into account any of the historical data available. Furthermore, 90% of the TM-zone is not included in the calculation since they were forced to use cut-off levels that would apply to underground mining, despite the fact that the TM-zone will be mined as an open pit.
Also, the NI 43 did not take into account the 10% twin hole drilled to confirm the TM-zone. Because of this Donald Wedman, who is a mining engineer, carried out an internal resource calculation (not NI 43-101 compliant). It includes the historical data (6.6 Moz Ag according to the historical numbers), the exploration data carried out more recently, and the confirmation of the TM-zone. This resource calculation shows these numbers:
Silver: 9.1 Moz Lead: 17.7 Mlbs Zinc: 20.0 Mlbs
CMC is now waiting for the final grades from the bulk sample to decide whether to update the existing NI 43-101 calculation. Only 10% of the Silver Hart area has been explored so far.
Silver Hart has an average concentration of 1930 g/t Ag but the area currently being mined shows more than twice that concentration. Samples were taken from every "super sac" containing 1.0 - 1.5 ton ore each that were sent as bulk samples. These samples showed average grades of over 5000 g/t Ag as well as 20% lead.
While the mill at Silver Hart Mine is in the process of being completed with all permits necessary, CMC have started to sell bulk samples. This is possible since the mineralization is of such high grade and CMC already has the permit to mine the ore.
The first bulk sample has been sent to a customer in China and CMC has received a letter of credit for 572 000 USD for 138 tons of ore. For next year a larger sample of 2000-3000 tons is planned since they have a special Class III which will allow CMC to increase the bulk sample this much. In the calculation further on I will show that this translates into considerable income for CMC.
Silver Hart Mill
The mill at Silver Hart Mine is near completion. What is now needed are the permits from the Yukon Environmental and Socio-economic Assessment Board (YESAB). This is the reason CMC has started to produce bulk samples while waiting for these permits. Naturally it is difficult for CMC to say when they think the mill will be up and running. They can only say they are providing YESAB with all the necessary answers and hope the process will swift and without undue delays.
The mill has a capacity of 80 tpd, which would correspond to ~670 000 oz Ag per year as CMC is not counting on production in the winter due to the weather conditions. It is possible to have year round production, but this would increase the mining costs, being an open pit mine. The mill can also be expanded to 250 tpd if necessary, but obviously this would require additional permits.
CMC has another project in the Yukon called Logjam and consists of an area with known historical silver mineralization. CMC needs to carry out drilling to assess the potential of this area. Revenue Estimates
The immediate plan is to extract high grade ore from the first gold pod, which contains about 24,000 ounces of gold in 22,000 tons of rock. This is anticipated to take 1.5 years to complete, generating nearly $30,000,000 in revenue at $1,200/oz gold. The other gold pods are nearby (100-150m from pod #1), and will be mined out following completion of Pod #1.
Additionally, CMC is actively in the process of restarting their 100% owned Bishop Mill. Once operational, the company plans to generate further revenue via toll processing ore from surrounding local mining operations.
CMC's share of Radcliff, together with 100% owned Bishop Mill, can potentially generate $16 million USD/year to CMC for the next 4 years.
Over and above the initial revenue projections, shareholders in the company can look forward to sustained growth through:
* Radcliff: A total high grade resource of 300,000 oz gold @ 3 g/t, valued at over $100 million gross at $1,200/oz gold.
* Bishop Mill expansion
* The above estimates do not take into account the significant potential of the high grade Silver Hart project. We expect this to add several hundred million dollars to the company's gross inground asset value. Conclusion
CMC Metals appears to be on the verge of bringing in serious cash flow in relation to the market cap during the next year. The diversification of income between the Radcliff Mine and Bishop Mill in California is providing some stability to the situation. At todays price (0.14/share CAD), CMC has a market cap of less than $5 million, which leaves an incredible upside for early shareholders.