RE:Consolidation with kootenayHey LGreen,
It`s too bad Northair didn`t drill the 3.8 km RAM Zone and also La Nagalera Zone before getting into this type of arrangement. On the conference call today the Kootenay guy said that RAM Zone is probably a feeder zone on the property - likely one of the feeder zones that supplied the silver to the deposits we have already drilled elsewhere on the property. I also felt that this was at least a remote possibility, based on the very high grades we were sampling within the RAM Zone adit. I think strong drill results at RAM Zone would have created excitment for the Northair shares.
Kootenay has listed drilling RAM Zone as 1 of their 2 top priorities in 2016.
Putting all the pieces together, it sounds like Kootenay made an offer to Northair a couple of months ago and they have working out the details ever since. I guess Northair had to decide whether to continue to go it alone or join Kootenay`s vision to consolidate the silver small cap space in Mexico.
I would have liked the deal to be better than $.055 to .06 (the more realistic offer, within this warrant noise), especially Northair is providing most of the cash. I give very little value to Kootenay`s Promontorio deposit right now. It could eventually be a significant contributor down the road, with higher silver prices, but has little of no value at this time - is my view
I like Kootenay`s La Negra asset (located 6.5 km from the Promontorio deposit), but I have concerns. My main concern is size. The resource 43-101 will not be available until H2 2016 thus we are unable to know if we have sufficient ounces to support a mine. It looks like it`s hosted in a diatreme breccia, which is a host evironment that has a reputation of providing underground minerals (below open pits). Early La Negra drill results provide hints of this also.
To compliment La Negra, Kootenay identified a number of early stage test targets within a few km. Success at establishing reasonable deposits at these targets could make La Negra more viable for a reasonble size operation.
La Negra`s pit deposit could be mined 100% via heap leach. This is important for mine start up, as heap leach operations post substantially less than putting in a conventional milling operation. For example, they could mine the deposit using heap leach for, say, 4 years, then use the cash flow to build a conventional milling operation to process the underground in later years (if the underground resource is large enough).
The main reason 100% heap leach may be possible to La Negra`s open pit is due to the recovery test results. The upper level of La Negra is oxide and the level is sulphide. Oxide is soft material which is ideal for heap leach mining. Sulphide material often does not test well with heap leach processing, due to it being harder than oxide. However, both oxide and sulphide materials test well in La Negra recovery testing efforts. Actually, it seems like that sulphide materal tested a bit better. They need to perform further tests, but it looks like they will process the entire pit via low capex heap leach processing.
Another concern I have with the La Negra deposit is the base metal content and heap leaching. There is some base metal content here even though it is low. I don`t know either way if it will disrupt the heap leach system. I know, in the case of heap leaching for gold, base metals can clog up the system. I don`t know how different it is for silver. Again, the base metal content might be low enough to flow though and not clog.
It looks like Kootenay-Northair (La Negra-La Cigarra) will be the foundation of what will likely be the lead junior silver company in the world, if it is successful in consolidating the silver junior space. The space hasn`t been consolidated in a while. All companies in the space have been hammered down to next to nothing. Personally, I think one of the companies they bring into the fold needs to be a small producing silver of gold company, in order to provide cash flow to carry out exploration programs (to minimize chare dilution).
With the depressed minerals market, a number of companies are now executing the same type of plan, but in different mineral spaces, such as:
* First Mining Finance
* Osisko Royalties
* Oban Mining (Quebec junior gold)
Kootenay-Northair is the first player to initiate this strategy in the silver junior space.
We are probably pushing 200 million ounces of silver, combined overall all for 3 deposits (La Cigarra, La Negra and Promontorio), once La Negra`s 43-101 resource profile gets done.
We`ll see if they can get it to 300 million ounces with further consolidations.
This will be the go to silver junior company for institutional investors once the silver price turns.
I went through a similar situation before. These things can either make you money or they can be a disaster. It is heavily dependent on management decisions and execution, but partly dependent on turn around of the product price as well (timing). Fortunately, my situation turned out positive. Hopefully this new situation turns out well also.
Of note, only about 30% of silver comes from dedicated silver mines. About 50 - 60% of silver comes as by-products of base metal mines. The remaining 10% (or less now) comes from scrap silver supply. The depress silver price has almost completely wiped out scarp silver supply. All base metals have been hammered due to the global economic slowdown. A number of large base metal mines are close to shutting down.
When these massive base metal mines are shut down a lot of silver supply will be removed from the market. Silver investment deman is still extremely high - though it fluctuates from time to time - 2016 is very strong thus far.
It may be silver supply shortages that turns the (highly suppressed) paper silver price around. If the big base metal mines start going offline soon then the silver price turnaround my not be too far behind.