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Date Posted: 21:36:01 10/13/03 Mon
Author: siempre
Subject: CZN alert from Jason

Canadian Zinc ALERT!!!

There was big excitement about CZN on Thursday and Friday over an internet post
that turned into an article put out by Michael Dogariu, see here:

http://www.321gold.com/editorials/dogariu/dogariu101003.html

The article estimates CZN annual earnings as US $.71/share. At a price to
earnings (PE) ratio of 10, this suggests a share price of US $7.10/share. This
kind of article can really boost the share price which stands at US $.62/share.

The article used 38 mil shares, yet, there are approx. 50 mil shares fully
diluted. So that there is NO MISTAKE, you can get the number of shares from the
following urls:

from http://www.canadianzinc.com/about/admin.shtml
44.2 mil fully diluted as of March 31, 2003 on website. This included warrants
ranging in price from about 20-30 cents CAN, which have now most likely all been
exercised.

In addition, there were 900,000 options granted to insiders, as indicated in the
press release Sept. 16th:
http://www.canadianzinc.com/press/docs/PR03.09.pdf
http://biz.yahoo.com/ccn/030916/b286e2eed11e145bccb2f4bc6c1ad4ad_1.html

In addition, there was the recent $2.5 mil private placement announcement on Oct
8th:
http://biz.yahoo.com/ccn/031008/7d7a3bc84f436cb0044d3e17bcb537c7_1.html
http://www.canadianzinc.com/press/docs/PR10-08-03.pdf

This private placement adds and creates 2.5 mil flow through shares, plus 2.5
mil shares and 1.25 mil warrants, or a total of 6.25 mil shares.

44.2 + .9 + 6.25 = 51.35 million shares fully diluted.

Next issue: Was that profit estimate correct? It sure excited me, but I was
skeptical. How does one estimate profits when the company has not yet started
mining? I tried very hard today to "do my own research," and "check the math"
of this other writer, and answer this question for myself, by using publicly
available information provided by the company, and here are my results.

I tried to calculate the profit from the latest press release at
http://www.canadianzinc.com/press/docs/PR03.09.pdf

"cash operating margin of $3.30/oz., or $240 million over the life of the mine."
"over 18 years"

$240 million / 18 years = $13.3 million/year.

I think this is "total profits," because the sale of the zinc, lead, and copper
componants of the ore at current prices create the "by product credits" listed
in the press release that help create the "low cost" silver.

If "cash operating margin" is profit, then...

$13.3 mil profit / 51.35 mil shares = $.26 profit/share in first year.

But this seems like a rather conservative company estimate, given the other one
I found. There is another profit estimate at the company website, note the
words, "highly profitable":

Latest info:
from http://www.canadianzinc.com/welcome/index.shtml
"Recent work reviewing economics of operation in light of current smelter terms
and last years drilling indicates that project, with a cash break-even price of
19 US cents per pound of salable Zinc, would be profitable even at today’s
prices (34.5 US cents per pound zinc.) This makes the mine highly profitable at
any normal pricing scenario, with production in excess of 125 million pounds of
salable Zinc per year.

Using this phrase: "a cash break-even price of 19 US cents per pound of salable
Zinc," given the 125 mil lbs./year.

$.40 current zinc price - $.19 "break even" cost = 21 cents/lb profit. x 125 mil
lbs = US$26 million profit each year.

US$26 mil profit / 51 mil shares = $.51/share profit/year.

This profit figure is nearly double the recent figure of the press release in
September, 2003, that spoke about silver profit, which I calculated at
$.26/share profit/year.

I don't know why there is such a big difference in profit estimates from the
company. Perhaps they tried issuing a more conservative estimate after the run
up in the share price to help calm things down? Regardless, this looks to be
very profitable, and I strongly expect a much higher share price in the near
future.

To help to see where the actual profit is coming from, in each of the metals,
see the following two sources of information.

For metal prices:
http://www.metalprices.com/

For ore content:
From: http://www.canadianzinc.com/prairie/scoping.shtml
"The Prairie Creek Deposit contains a significant mineral resource of over 11.8
million tonnes grading 12.5% zinc (Zn), 10.1% lead (Pb), 161 g/tonne silver (Ag)
and 0.4% copper (Cu)."

Then, me, doing the math, is as follows:

12% zinc/ton
2000 lbs./ton. x .12 = 240 lbs zinc./ton
240 lbs zinc/ton x 40 cents/lb = $96/ton for the zinc.

10.1% lead/ton
2000 lbs/ton x .101 = 202 lbs lead/ton
202 lbs lead/ton x 26 cents/lb = $52.5/ton for the lead.

in ZONE 3
6 oz. silver /ton x $5.00/oz = $30/ton for the silver.

.4% copper
2000 lbs/ton x .004 = 8 lbs. copper/ton
8 lbs. copper/ton x .85/lb = $6.8/ton for the copper.

Gross dollar value of minerals in a ton of ore at today's prices = $185/ton

I do not know what percentage of that is "recoverable" after processing, but it
may be something like 60-70% after smelting.

The resource contains 11.9 mil tonnes.
11.9 mil tonnes x 1.10 = 13.09 mil US tons.

The annual production woul be to take the 13 million US tons/ 18 years = 722,222
US tons/year. 720,000 tons x $185/ton = $133,000,000 gross value of the
minerals in the ore per year. Then, we need to subtract all the costs to mine,
mill, transport, and smelt that ore, and pay for wages, electricity, and taxes
on profits, and additional drilling and exploring...

but it seems that conservative profit estimates from the company range from $13
million to $26 million per year, which, at 51 million shares, create per share
profit estimates that range from $.26 to $.51/share, US.

At a conservative price to earnings ratio (PE ratio) of 10, that suggests a
share price between $2.60 and $5.10 US per share by the time those earnings are
made into reality. On Friday, the share price closed at $.62/share US. The
potential rise in price remains amazing.

The stock price exploded about September 15th. And no wonder, that was when the
company issued a press release announcing permitting. With permitting in place
since the Sept. 15th press release, and financing offers available, production
may begin in as little as a few months.

Canadian Zinc is a zinc mine, with plenty of silver price "exposure" and upside
potential to rising silver prices. Canadian Zinc also has further potential
because the 18-year mine plan with 70 million ounces of silver consists of zone
3 only, and there are 12 zones on the property, all containing some silver.

The other very bullish factors for Canadian Zinc, of course, are that there is
in place over $100 million worth of existing infrastructure that was built by
the Hunt Brothers, the famous silver investors of the 1970's and 1980's. And
thus, the company needs to raise only $20 million CAN ($15 million US) to finish
the mine and begin mining.

The company might be able to pay off such a loan within the first year. But I
would hope they would avoid debt, and raise the capital as the share price
begins to approach $2/share or more, and do a final public offering between
$2-4/share.

Trading Symbols:
CZN.TO
CZICF.PK

About the symbols: These can be used at yahoo's finance pages. The CZICF is the
"pink sheets" symbol, and is used for American investors, quoting the price in
US dollars. But the pink sheets quotes are not always updated daily. The other
symbol is for trading in Canada on the Toronto Exchange, and it lists the price
in Canadian dollars. Today, Monday, was a Canadian holiday, so I don't think
there was any price action on Canadian Zinc shares.

Disclaimer: I own shares of Canadian Zinc, and I have not been paid by the
company to write about them.

In case you have not seen it, "Silver Stocks -- Comparative Valuations 4," is
out at gold-eagle.com:
http://www.gold-eagle.com/editorials_03/hommel101303.html

Sincerely,

Jason Hommel

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