Friday, 17 May 2013

The Next Potential CXO or ZEN Mining Stock

Canada Carbon Inc: CCB.V
Current Price: $0.08
Target Price $1.33
Potential Gain: 1,563%
Shares Outstanding: 
Market Capitalization: $5,241,424

Not a lot of good has come out of the Canadian junior mining sector as the TSX Venture is near all-time lows. Despite that, there are still some rising stars which give investors hope. Both Zenyatta Ventures Ltd. (TSXV:ZEN) and Colorado Resources Ltd. (TSXV:CXO) have made investors rich over the past several months. ZEN has had some very encouraging early results on their Albany graphite deposit while CXO recently struck it big on their North ROK property in BC.

This is where Canada Carbon (TSXV:CCB) comes in. While the stock sits at 8 cents with a market cap of just over $5M, it has elements that could make it the next ZEN or the next CXO. Or both.

 Let's focus first on CXO's property. North ROK is 15 km Northwest of the Red Chris mine development. Quoting CXO's site "The property is underlain by volcanic and sedimentary rocks of the Upper Triassic, Stuhini Group to Lower Jurassic, Hazelton Group. These rocks are intruded by the Edon stock, an Early Jurassic, quartz monzonite intrusive similar in age and rock type to the Red Chris stock that host the Red Chris deposit.". It is important to note that CXO's claim to a mine-able resource is related to their proximity and similarity to the Red Chris deposit.

CCB has a significant claim in the Red Chris region. Quoting their site and referring to the image below, "Canada Carbon's 100%-owned Red Chris South copper-gold prospect consists of over 13,000 acres, contiguous to Imperial Metals Corporation’s (III – TSX) “Red Chris” copper-gold discovery in northwest BC. Imperial Metals neighbouring “Red Chris” property recently announced drill intercepts of 628.7 metres grading 1.97 g/t gold and 1.13% copper and 1,112.5 metres grading 0.54% copper, 0.61 g/t gold and 1.96 g/t silver in 2 separate drill holes."

Having such a large claim beside Imperial Metals and close to Colorado Resources makes CCB an interesting area play as they too could have a similar discovery or at a minimum be the benefactor of a joint venture that is lucrative to CCB. The JV route might be the way for CCB to go as they have so many properties that this great deposit is an afterthought to them. CCB's primary exploration interest is Graphite.

The focus on Graphite is smart as the search has been red hot, led by the meteoric rise of Northern Graphite (TSXV:NGC) to over $3 last spring and the incredible rise in price of Zenyatta Ventures (TSXV:ZEN) to over $2 in early 2013 from under 50 cents in October 2012.

While many companies are getting on the Graphite bandwagon, few have been as successful and aggressive as Canada Carbon (TSXV:CCB) in acquiring and developing key Graphite properties available in strategic locations across Ontario and Quebec. Last December they managed to finalize the purchase of the Asbury Mine, a former producing Graphite mine with plans to fast track its re-opening as well as acquire an additional three properties later in the month. In February CCB garnered some positive attention after their grab samples from one of those three latter acquisitions,  Miller, reported significant initial Graphite grades as high as 49.4% Cg. These results were encouraging enough for the company to acquire additional claims at Miller and initiate a Phase I Exploration Program in April as it is a lump/vein graphite deposit that is potentially similar to Zenyatta's Albany graphite deposit.

Quoting the company's site, "The rarest and most valuable form is vein graphite.. As the name suggests, this form of graphite is a true vein mineral as opposed to a seam mineral (amorphous graphite). Lump or vein graphite, as found in Sri Lanka, is usually found in high grade deposits and is highly sought after by both producers and customers. This is because purity is a key consideration. For producers, the higher the grade, the lower the milling and refining cost. For customers it offers the opportunity to offer more flexibility in product applications. It is therefore significant that the initial samples from Canada Carbon's Miller property are demonstrating the extremely high grades associated with lump or vein-like properties in Sri Lanka."

The fast tracking of production on Asbury and the grab samples and exploration program on Miller just weeks after closing the purchase shows that the company is not only aggressive in moving their projects along quickly, they are adept at choosing the right Graphite plays. This successful combination while the world demands Graphite is sure to see CCB's stock price rise both in the near and longer term. Insiders are so confident of the company's prospects that they bought 163K shares in the open market in October in addition to their participation in the recent private placements used to support the acquisitions and get the mines up and running.

A picture of the company's projects below shows just how widespread and diversified the company is within a range of highly prospective and economically feasible Graphite properties across Ontario and Quebec.

The one furthest to the left on the map, just north of Algonquin Park is the Maria Graphite Project which is contiguous to Northern Graphite’s Bissett Creek Graphite deposit which reported high recovery levels of large flake, high purity graphite across their entire resource with overall recovery rates at approximately 97%. You can see that CCB's claims surround NGC's property below. NGC has a market cap of $44M almost exclusively thanks to Bissett Creek. If Canada Carbon has similar success when searching for Graphite on these surrounding lands their market cap would reflect a similar value plus the value of their other properties. Having this land also makes them a prime buyout or partnership target of NGC should they wish to expand their holdings in the area.

Despite the potential value held in the Maria claims, this project is only fourth in CCB's hierarchy and for good reason as the top 3 are all past graphite producers which are able to get up and running profitably in a relatively short time frame. The first project in mind would be the Asbury Mine. From the December news release:

"Canada Carbon's CEO, Paul Ogilvie commented: "We are very excited to have completed this highly strategic asset and continue to move ahead to re-open the former producing mine. We consider the Asbury mine to be one of the best projects in the country, high grade, top quality, and geographically desirable."

The Company plans to move as quickly as possible to have the mine up and running within 12 to 14 months. By air classifying before milling, the Company hopes to achieve a pre mill grade of 70%. This will allow the material to be trucked to a milling location off the mine site. This advantage is no need for tailing ponds, significantly smaller mill, and simpler permitting."

Click here to see the Technical Report on the Asbury Property in accordance with NI43-101

The Miller Property would be next in line. From the February news release:

"The sampling program represents the initial steps in Canada Carbon's plans to re-open the former Miller mine as quickly as possible.

Mr. Paul Ogilvie, the CEO of Canada Carbon commented: "Success in the graphite sector is a function of many elements but at the top of that list is access to high grade natural graphite It offers the opportunity for low production and product costs which in turn will attract customers and represent a key competitive advantage in the graphite markets. Our team has extensive experience in the graphite space and most have never seen anything like these new samples from Miller. It is not uncommon to encounter properties where graphite flakes can be disseminated in grades from as low as 1.2% to 22%. To be seeing grades from Miller in our first grab samples as high as 49.4%C is encouraging and supports our belief that our lump/vein project warrants further research and material sampling".

The Walker Mine is the third one in line. From the December news release:

"The Walker Mine is a past producer of graphite located 30 km northeast of Ottawa. The property consists of four claims covering the past mine and eleven claims covering interesting geological formations with potential graphite mineralization around the original deposit. More than thirty pits have been reported on the past producing property. Massive graphite veins have been found at the Walker Mine." 

As you can see by their actions, the company has focused their efforts on the very intelligent strategy of acquiring lands that all have a history of mining graphite in their past. This means that they were able to be mined economically using technologies that are decades old and at real prices that are low compared to today. Graphite has skyrocketed in price and is unlikely to fall much again as China dumped large amounts of Graphite it produced onto the market in the 1990's and this glut of supply kept the price low. As a nation going through industrialization, they will now need it in the steel making process. The rise of Lithium Ion batteries (of which Graphite is a key component) for electronics such as laptops, smartphones and MP3 players will only be increasing in demand.

Finally, Graphite is not a heavily traded commodity like gold, oil or copper and is not subject to the same trading effect of paper contracts. Graphite prices will reflect true supply and demand of the world economy and won't be as subject to and potential future stock market or other asset price bear runs that could be led by hedge funds or other large traders. That makes Graphite a defensive stock in a way, and we have evidence of that based on the price performances of ZEN and NGC relative to the rest of the TSX Venture over the past two years.

The intelligent way in which Canada Carbon's management team is acquiring Graphite properties that have the potential to be operational shortly and the aggressive way they are approaching this goal makes CCB one of the prime candidates to go on a heavy bull run just like NGC did in early 2012 and what ZEN is doing so far in 2013. Both of those companies surpassed $80 million in market cap when they were on their run. CCB makes an excellent candidate to do the same within the year. The Red Chris property that is in close proximity to CXO's North ROK is icing on the cake. The Gold Report maintains a strong buy on CCB with a $1.33 price target.