Description

Fireweed Zinc

Summary

Fireweed’s recent run of excellent borehole results at Boundary and Boundary West stand in sharp contrast with the wilting stock price. The EV of less than C$40m reflects a degree of investor fatigue that typically leads to corporate action. We are really excited by this divergence between value and price, and believe that patient accumulation will soon be rewarded.

The company owns 940km2 of tenements on the border between the Yukon and the Northwest Territories in the prolific Selwyn Basin.

Fireweed has a 2018 PEA that demonstrated a post-tax NPV8 of C$448m on upfront capex of C$404m, based on lower metal prices, much higher treatment charges and a smaller resource than the currently delineated resource.

Why the opportunity exists

The issue is that it doesn’t help to drill great boreholes if you don’t update the 43-101’s and PEA’s for 4 years running. Handwaving and geological theories don’t cut it on Bay Street. That’s why stockholders had to endure the pain of a 40% draw-down in a year, culminating in a flow-through placement at an implied price of 60c in December, to enable management to pre-fund the 2022 campaign in a market where rigs and staff are in short supply.

Nevertheless, an exceptional opportunity

The new boreholes at Boundary and Boundary West are not only expanding the camp by several kilometres to the west, they are delineating shallow resources at good grades, capable of being mined in open pits. By growing the economic tonnage, the camp also graduates into a league where Macmillan Pass can move the needle for one of the majors.

That’s the rub. There’s a window of opportunity between now and the release of the new Resource Statement and PEA, when more and more drilling results become available, but the market is kept guessing as to how these results translate into dollars and cents.

The old PEA also suffered from what can politely be termed “Looney PEA disease”. That is the habit of basing PEAs for a good part on Inferred Resources. As a general rule, if the owners don’t want to waste their capital on drilling the necessary holes to upgrade Inferred Resources to the Indicated definition, then those tons are probably not worth mining.

The new boreholes at Boundary and Boundary West, as well as the old Tom North area are shallow and carry good continuous mineralisation. The new PEA will therefore be able to arrive at critical mass, at modest drilling cost, without having to rely on padding from marginal ore blocks. The current discount of 90% to the NPV should therefore narrow, to reflect the greater likelihood of near-term economic extraction.

If one then inculcates the higher metal prices , the dramatic drop in treatment charges (from $210 to $80) and subtract the C$71m of government support for roads and infrastructure from the pre-production capex, then the economics are completely transformed. The result is a higher NPV times a lower discount, resulting in a much higher market cap.

But that is only the start, based on bringing the paper work up to date with the drilling.

The real potential lies in proving up the rest of the fertile corridor towards the northwest, where promising geophysical and geochemical results suggest that shareholders can look forward to an exceptional multiplier on exploration spend.

The intersection of entirely new forms of mineralisation and even copper, suggest that the camp could host Red Dog like mineralisation. Something previously thought to be impossible.

The other key difference between the old and the new PEA, will be the potential for a phased modular project roll-out, requiring less upfront capex.

But as mentioned above, management have been tone deaf to the need to convert their geological progress into quantifiable value. The website still carries a slide deck dated September last year. The  youtube video on the home page is a year old and talks about the updated 43-101 and PEA being delivered in 2021. The year has come and gone.

As for the management team, the CFO left “for personal reasons”, in October last year, but the anouncement of the appointment of the new CFO was released in November. The third CFO at Fireweed in three and a half years.

The CEO, Brandon MacDonald, has been in charge since the listing 5 years ago. We think the company could benefit from a more engaging and enthusiastic spokesperson.

In summary, the value proposition is essentially twofold;

1. The release of a new PEA based on attractive open-pittable Indicated Resources and updated input values and

2. The significant upside of the balance of the fertile corridor.

Catalyst

Positive surprises from lagged assay results of the 2021 Summer campaign

Approach from either Teck or Hudbay : farm-in or outright acquisition

Release of the updated 43-101 and PEA