(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long CZX.V)
Tonight Canada Zinc Metals (CZX.V, last at $0.305) started to report assays from its recently completed drill program at the Akie Project in British Columbia. The highlight hole was 28.7 metres of 10.4% lead-zinc and that is true width. This is a high-grade, laterally continuous, generally predictable SEDEX deposit with big tonnage. It feels like it's about time the market woke up to this name, but I suppose we'll see tomorrow when the stock opens for trading and in the weeks following as additional pending assay results start to roll in. Read a little more on what's to come near the end of this note...
Back in November, I had suggested CZX as a way to get exposure to a very large zinc resource at a very attractive price, and in a very good jurisdiction. Well, since then, zinc is hitting the radar of all serious mining investors as the metal has rallied 40% over the last twelve months and yet CZX can actually be had for less than the price it was when I mentioned it 10 months ago. So what gives?
First of all, CZX suffers from a massive identity crisis as it is perpetually confused with Canadian Zinc Corp (CZN.V). Most people I talk to have never heard of CZX, but almost all are aware of CZN. I know that seems like a ridiculous situation, but it's actually true. I've talked to many industry contacts who had never heard of the company before I asked them about it, but were quite familiar with CZN.
Second, CZX hasn't exactly been active with the drill bit in recent years. Despite having drilled 65,000 metres over the life of the project, only 10,000 metres have been drilled at the flagship Cardiac Creek deposit since 2012. That's not a lot of news flow and investors have short attention spans and limited bandwidth... after all, there are a lot of companies to follow out there and lack of news is a real buzz killer.
Third, there isn't a single broker covering CZX at the moment (that's a hint-hint to all you investment bankers out there looking to get involved in a huge zinc deposit in B.C. next door to Teck). That seems insane to me... this is a 27.7 million tonne (19.6 million tonnes indicated, plus 8.1 million tonnes inferred) zinc-dominated SEDEX deposit (8-10% Zn+Pb with a 5:1 to 6:1 Zn-Pb ratio)... but you won't know that unless you make it to slide 17 (!) of the corporate slide deck. Slide seventeen!! One of the largest undeveloped zinc assets in the hands of a junior company and CZX doesn't highlight that point until two-thirds of the way through their corporate presentation. Well, at least I can say that they are not promotional!
The Cardiac Creek deposit is located within a district scale exploration land package (part of which is optioned to Teck and Korea Zinc) in British Columbia. Sure there's still some metallurgical work to do (early work was encouraging, to quote from the June 2016 43-101 report "Metallurgical studies to date, although preliminary in nature, indicate that the deposit is amenable to standard extraction methods used at similar deposits.") and the company won't have its first PEA completed until mid-2018, but this is 4.7 billion pounds of zinc trading at a market cap of C$50 million (with no debt and over $5 million in cash). Oh, and as of last September, Chinese giant Tongling Nonferrous Metals Group owned 32% of the stock. That's a decent vote of confidence and pretty much a blocking position for Tongling, but given Tongling's history of buying assets they like, you'd think that a deposit of this size has to be on their list of zinc targets to consider. By any comparison, CZX screens as being dirt cheap.
Look, I could go on all day about how cheap this big little zinc company that no one has ever heard of is, but for now I'll leave you with this link to tonight's press release confirming additional high grade mineralization with many assays yet to come. And one of the holes yet to come should be a zinger if my instincts are right. Back in late July CZX reported that, and I quote (the emphasis is mine):
"Drill hole A-17-137 intersected a massive 109.20 metres (core length) of the Cardiac Creek zone from a depth of 466.80 metres to 556.00 metres. The mineralization displays a distinct increase in sphalerite [a zinc-rich mineral] and the mottle-textured quartz-carbonate-sphalerite-galena-rich [a lead-rich mineral] bands become the dominant texture throughout the zone. In addition to the Cardiac Creek zone, a 5.54-metre section of massive sulphide was intersected in the footwall of the deposit from 559.42 metres to 564.96 metres, which consists primarily of fined-grained, brassy pyrite that has been crosscut by carbonate-quartz veining that is host to abundant creamy red-pink sphalerite and local galena."
I think I want to be around when that hole comes out... because even though it's not true width, it should be the kind of hole that puts CZX on the radar of a much larger audience who will start asking why they've never heard of this nearly-5-billion pound zinc asset before. My thinking is that CZX should have a short ride to the 60-70c range, at which point institutional money will start to come in, as long as the zinc price continues to cooperate of course. There are very few zinc assets of this size, grade, and quality that I'm aware of and with district scale exploration potential on the adjoining properties... and to top it all off, I think there's a good chance I can get a spinco out of this along the way if Cardiac Creek is eventually groomed for sale or is outright sold.