I wrote about Defiance Silver Corp. (DEF:TSX.V; DNCVF:OTCBB) (DEF-V, DNCVF-OTCBB) back in July. Their shares were $0.35 back then and have almost doubled since. Investors it seems to me are way too bullish. While I would like to see a deeper correction in gold and silver, Defiance is prepared for higher prices. I think they are as perfectly positioned as any company in the space. Because of leverage.
Many years ago Rob McEwen ran Goldcorp. When he went to gold shows, he always pointed out that Goldcorp had the lowest cost of production of gold in the industry. I think he used the figure of $85 an ounce when gold was in the $260–$300 range. So he was saying Goldcorp could produce at $85 an ounce so no matter how low gold went, they would be the last company standing.
At the time some of the top investors in the financial industry were predicting much lower prices for gold. Investors should remember that at market lows everyone is predicting cheaper prices and at market tops are suggesting much higher prices. Robert Prechter, famous for his best selling book on the Elliott Wave even called for $200 gold.
I was chatting with McEwen sometime around 2002 or so at one of the shows. I pointed out that he was sending a mixed message. On the one hand he was predicting much higher gold but on the other hand he was bragging about being the last mining company in the industry if gold actually did drop to $200 an ounce.
It seemed obvious to me that if there was only one profitable gold mining company that the industry would have died and been buried and I said so. Rob looked at me and gave me one of those deer in the headlight looks. Truly that hadn't occurred to him.
"Rob, if you believe gold is going much higher, you don't want to only own a company that can produce at a profit at $85 an ounce, you want to be buying up cheap projects that require $400 or $500 an ounce to make money. That way you get leverage and when gold goes up as we know it will, those go from dead in the water to being wildly profitable." I said.
If you want to make a lot of money investing and you believe as I do that the Fed has destroyed the dollar and hyperinflation is around the corner, you want to be in the highest leverage projects you can find. Because they might not work at $1250 gold and $2.50 copper but at $2500 gold and $4 copper you would own, well, let's call it a gold mine.
Defiance Silver just completed a $10 million private placement. They are well cashed up to move both of their key projects forward. In May Defiance got the vendor to agree to move out the final property payment on the San Acacio silver project to September of 2023. DEF will be paying a total of about $4.7 million US to own 100% of San Acacio subject to a 2.5% NSR.
By and large investors are or should be familiar with the San Acacio silver deposit. It has been the focus of Defiance for years. The company begins at 5,000-meter drill program at San Acacio in the middle of October
But the real hidden secret is in the Tepal copper/gold deposit located in Michoacn state. It's about 170 km south of Guadalajara. Don't worry much about the location. I don't know where those are either other than they are in Mexico. Defiance owns 100% of the Tepal property. They picked it up in 2009. They released an updated 43-101 resource in 2017showing a gold resource of just under 2 million ounces and a copper resource of about 935 million pounds. The copper alone gives five pounds of copper at $3 a pound per share of Defiance.
A PEA also done in 2017 called for an NPV after tax of $169 million US based on $1250 US gold and $2.50 US for copper. But every $250 increase in the price of gold adds about $100 million US to the NPV. That brings the NPV a lot closer to $500 million US.
The biggest issue at Tepal is grade. The 43-101 shows an M&I gold grade of 0.3 g/t and 0.2% copper. Those are not high grades. But as prices for the metals go up, the economic grade goes down. Defiance has been working on Tepal for over a decade but it's been on the back burner. With higher prices for the metals in sight, Defiance will pour more effort and resources into moving Tepal forward. The project is in a perfect position to offer investors nice leverage to the price of both gold and copper.
Defiance is an advertiser. I own shares, I participated in the last PP and that makes me biased. Do your own due diligence, please.
Defiance Silver Corp
DEF-V $0.61 (Sep 18, 2020)
DNCVF-OTCBB 185 million shares
Defiance Silver website
Bob Moriarty
President: 321gold
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