Zazu Metals Corporation

Zazu Metals Corporation holds a 50% interest in the high-grade zinc-lead-silver LIK property in north-west Alaska. It has the right to acquire an additional 30% interest in the property from Teck by spending an additional US$25m (or approximately US$40m adjusted for inflation). Approximately US$17m has been spent on development, including spending by third parties such as AIDEA. We expect Zazu to advance the project and sell it to a larger mining company for development.

LIK property
The latest NI 43-101 Preliminary Assessment (PA) estimates the LIK deposit has an indicated resource of 18.7m tonnes grading 8.1% Zn, 2.6% Pb and 52.8 g/t Ag. It is expected to be developed as an open-pit mine with an eight-year mine life. The PA estimates capital costs at US$352m and total cost at US$0.70/lb Zn after by-product credits. Annual Zn production is estimated at 295Mlb, with 79Mlbs of Pb and 280,000oz of payable Ag. Zazu is working on multi-year data gathering exercises focused on environmental issues, which will not be released as individual studies. LIK is 22km from the AIDEA-owned haul road. On Zazu’s behalf, AIDEA is currently reviewing whether the Delong Mountain Transportation System requires modification to accommodate LIK concentrate. Zazu will be charged a toll for its use.

Finance
Zazu has US$3m in cash and no debt. Management estimates its cash should last 18 months. The capital cost to develop LIK, estimated at US$352m, is for the mine and mill only, with regional infrastructure assumed to be built by AIDEA.

Valuation
Based on the April 2010 PA, the NPV of the potential 80% of LIK owned by ZAZ at an 8% discount rate is US$15m. We believe this understates the value of LIK, as the project is not fully drilled and this does not include resources that could be mined via underground methods. In addition, this report assumes the construction of a new port and a two-lane road to the coast. In an October 2010 JDS review of Preliminary Assessment (not NI 43-101), the pre-tax NPV of the potential 80% of LIK owned by Zazu at an 8% discount rate and US$1.00/lb Zn is US$86m. This report assumes larger equipment and larger benches in the pit. Based on the JDS report, a US$0.01/lb change in the Zn price affects Zazu’s pre-tax NPV by US$8m.

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