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Tuesday, November 14, 2006


Acadian Gold -- Hidden Zinc Opportunity

Acadian Gold Corporation (ADA in Canada, ADGLF in the U.S.) is a Canadian mining company based in Halifax, Nova Scotia. The company is focused on two main projects; the Scotia Zinc Project and the Scotia Goldfields Project.

About a year ago, with zinc trading at about .70/pound, Acadian worked out a deal with HudBay Minerals to purchase 100% of the previously producing ScoZinc from them for CAN$7.5 million, signing the letter of intent in December 2005 and closing the deal in July 2006. ScoZinc’s principal assets are a modern mill and zinc/lead deposits (the Scotia mine) 50km north of Halifax. With the price of zinc nearly tripling since they convinced HudBay to sell them ScoZinc, Acadian really hit it big with this purchase.

Acadian has already completed a positive feasibility study for the Scotia Zinc mine. With much of the infrastructure already put in place by a prior operator, the project is basically a turn-key project with minimal start-up requirements, allowing the mine to be put into production in Q2 2007. The Scotia Zinc mine is expected to produce 39.8 million pounds of zinc annually at a $0.36 cash cost per pound. With zinc over $2, the pre-tax cash flow should be nearly the same as Acadian’s current market cap, which is approximately $60 million U.S. fully diluted. If zinc moves much higher in the next 6 months, which seems likely given the LME zinc inventories are on pace to be gone within 3 months, the Scotia Zinc mine could produce more cash flow than Acadian’s entire market cap.

Acadian’s plan is to use the high cash flow from the Scotia Zinc mine to fund development of the Scotia Goldfields project, which has 4 properties progressing to the pre-feasibility stage to determine their economic viability. This approach of using near-term cash flow from base metals to fund development of their gold properties is similar to that of Roxmark Mines, one of our long-term favorites that we highlighted in April, and helps to balance the risk of base metals with the gold potential. Acadian also plans to issue a dividend to shareholders after zinc production starts, which is unheard of for a junior miner.

Acadian Gold has only a tiny fraction of the zinc of our favorite miner, Metalline Mining, but their near-term cash flow relative to its tiny market cap along with their gold properties make it a very attractive investment for those looking for a near-term zinc producer with good gold potential.

Technically, ADA tested its all-time high last week after recent MACD and money flow buy signals shown in the below weekly chart:

We believe investors who accumulate ADA under the .75 resistance area will be well rewarded in coming months when the stock breaks out from its base and heads much higher where it belongs. The market hasn’t yet recognized the zinc potential of this gold stock, but we believe this hidden zinc upside, which alone is arguably worth much more than the current stock price, won’t remain hidden for long.

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