Before the summer, we released a Q&A report with Michael Williams, CEO of Vendetta Mining (VTT.V), wherein we discussed the Company’s transformation at the Pegmont Lead-Zinc project in Australia from an exploration to development story.
Vendetta has initiated its 2016 exploration program at Pegmont and has recently released the assay results of several holes, confirming A) the existence of sulphide mineralized zones near surface and B) higher zinc grades at depth. In this follow-up report we will review these exploration results and discuss why the Company has traded millions of shares over the past several weeks.
We were really impressed with Vendetta’s drill results on Zone 5, and as this zone hasn’t been included in any previous resource estimate, this part of the project has the potential to boost the total size of Pegmont. Drilling at Zone 5 is ongoing, and we are excited to see more assay results from this zone!
The drill program is in full swing, and two batches of drill results have already been released
Earlier this month, Vendetta released the drill results of the ongoing drill program at Pegmont. In a first batch of ten drill holes, the company focused on the near surface Burke Hinge Zone, the open pit target located within walking distance from the main (underground) zones of the Pegmont project.
The drill intervals at the Burke Hinge Zone definitely yielded the desired result, as the company was able to confirm the high grade lead-zinc zones. In a previous update on the Burke Hinge zones, we noticed the value of the zinc and lead per tonne of rock in the first drill hole would result in an in situ value of $196/t (using a zinc price of $1.05/lbs and a lead price of $0.88/lbs), which is pretty impressive considering it’s located at a depth of just 41 meters. We have little doubt Burke Hinge will be mined as an open pit considering the relatively wide drill intervals, high grades (keep in mind a rock value of $196/t could be compared with an open pit gold project with an average grade of 4.6 g/t gold), and we’re looking forward to see the maiden resource estimate at Burke Hinge.
Indeed, the Burke Hinge Zone is not included in the current resource estimate at Pegmont, which currently contains almost 5.2 million tonnes of sulphide mineralization at an average grade of approximately 9.5% ZnPb.
We aren’t expecting Vendetta to publish a multi-million tonnes resource estimate at Burke Hinge, but we would expect the company to be able to come up with 500,000-700,000 tonnes of sulphide rock, which could contain up to 125 million pounds and lead on a combined basis. Burke Hinge could provide Vendetta with a starter pit that could go a long way to helping the Company recoup the initial Capital Expenditures relatively fast.
What’s even more interesting is the fact the current resource estimate also contains 1.8 million tonnes of ‘transition’ ore with an average grade of 6.5-7% ZnPb. Even though the company plans to mine the sulphide zones at Pegmont, it could make sense to have a look at these transition zones as well. Despite the fact the recovery rates will be substantially lower (a recovery rate of 55-60% would be a reasonable assumption), the average grade is high enough to make the processing of this ore profitable, especially as the transition zone at the Burke Hinge Zone will have to be excavated anyway to reach the underlying sulphide zones. As the mining cost will have to be incurred whether or not the rock will be processed, your only ‘real’ marginal higher production cost associated with the transition zone will be on the operating front as the processing costs per produced pound of zinc and lead will be higher (due to the lower grade and lower recovery rates).
But then there’s also Zone 5
Whilst the Burke Hinge Zone and Zone 2 could provide an open pit scenario, the real value at Pegmont will (have to) be realized by mining the sulphide layers at the 5 different zones on the property called Zone 1-5 (we know, the names are quite dull).
Vendetta’s latest drill results at the recently discovered Zone 5 seem to validate the Company’s thesis that Pegmont is a Broken Hill type deposit as the zinc to lead ratios are increasing to a 1:1 ratio (we discussed this possibility in our Q&A report with CEO Michael Williams). That’s an important step forward because even though we do like lead, the zinc price is still trading approximately 15% higher than the lead price so the higher the ratio of the more expensive metal versus the ‘cheaper’ metals is, the higher the rock value per tonne will be. Additionally, with the zinc supply shortage looming around the corner, most investors will very likely also be more focused on the zinc side of the project.
The Broken Hill type deposit indicates there has been so-called metal zonation, and a part of this year’s summer drill campaign was focusing on proving that theory. The company continued to drill more holes towards the southwest of the known mineralization, and indeed, the zinc grade does increase in that direction. Vendetta Mining hasn’t encountered the end of the mineralized structure yet and will continue to drill towards the south-west, chasing higher zinc levels.
Just like the Burke Hinge Zone, Zone 5 has not been included in the official resource estimate for the Pegmont project, which will be updated after the current drill program and metallurgical testing is completed. The Company is aiming for a total resource of 8-10 million tonnes and we would expect this exploration target to have been based on just the sulphide mineralization as the transition zone officially still isn’t part of the company’s production plans, providing additional upside. Based on current drilling there could be 12-15 million tonnes at Pegmont that Vendetta will identify through in-fill drilling. The overall Global Resource could be in the 20 to 30 million tonne range.
Why have so many shares traded surrounding the news
So if these drill results are indeed good, or at least meeting the expectations, why was Vendetta still valued at just C$5M until the second batch of results was released? Vendetta has also traded over 10 million shares in the past three weeks.
Unfortunately, the Company’s strong shareholder base is both a blessing and a curse for Vendetta. The Company has traditionally been a relatively illiquid stock as the majority of the shares were owned by strategic shareholders and the management team, and as Solitario Exploration and Development (SLR.TO, XPL) was added to the list of strategic shareholders, we now estimate at least 65% of the shares are held by the so-called strong hands, and this obviously didn’t enhance the liquidity.
To compound matters, the Company’s C$0.05 private placement became tradeable earlier in September, and the total trading volume since 5 days before the end of the mandatory hold period on those shares has now reached in excess of 10 million shares.
Vendetta has enjoyed renewed attention after releasing its drill results from Zone 5, boosting the share towards the 10 cent level and it appears that the Company has gotten rid of the weak sister shareholders.
Sure, the Company is still trading 47% above the placement price so at some companies this would be considered to be a success, but we aim higher, as the more holes Vendetta is drilling, the more outrageous a C$6.9M valuation actually is, as the Company seems to be on track to hit its 10 and 15 million tonne exploration targets before moving to a PEA based on a resource estimate containing 15 million tonnes of rock. Drilling at both the Burke Hinge Zone and Zone 5 is progressing well and the assay results and widths are in line with, or exceeding our expectations. On top of that, we wouldn’t exclude the possibility to recover lead and zinc from the transition zones and that would really be the icing on the cake.
The previous lack of liquidity on the market has prevented the share price from moving up, but we would hope that those who really wanted to get out of the stock after the 4 month hold expired have now offloaded their positions, as the share price seems to be moving up again.
And for the record, we also participated in that same private placement and are still holding every single share acquired.
The author holds a long position in Vendetta Mining. Vendetta Mining is a sponsor of this website. Please read the disclaimer