As we prepare to wrap up the first semester of the year, it's always interesting to have a look at some companies owning projects that might very well become the next "hot story."
In Mexico, Southern Silver Exploration Corp. (SSV:TSX.V; SSVFF:OTCQB; SEG1:FSE) continues to advance its Cerro Las Minitas property in Durango State. As a brief reminder, this project already hosts almost 114 million silver-equivalent ounces in just 10 million tonnes of rock at an average grade of in excess of 10 ounces silver-equivalent per tonne.
As Cerro Las Minitas (CLM) is a polymetallic deposit, the silver grade is actually just a minor part of the total equivalent grade, as CLM truly is a zinc-lead project with a nice silver credit. Some investors might see this as a negative, but it actually is a great way to gain exposure to a wide variety of metals, as CLM contains silver, gold, lead, zinc and copper.
The most intriguing part of the project very likely is the fact there still is plenty of potential to increase the resource estimate after having discovered no less than three new polymetallic zones on the property, while the Mina La Bocona target is showing very impressive gold results.
Of all the prospective zones, the underground Blind Shoulder target is by far the most exciting prospect.
Last year, Southern Silver identified a "zone of interest" under the currently known resource estimate. Named Blind Shoulder, this zone seemed to be pretty large, as the surface area of the mineralization seemed to be 600 meters by 400 meters. Southern Silver decided to target this area with a 10,000-meter drill program, of which approximately 4,300 meters have already been completed.
This first part of the drill program has already been successful in confirming the mineralization over a 350-meter by 300-meter zone, with intervals of 10 meters (true width) containing 186 G/t Ag eq and 9 meters of almost 20 ounces of silver (not equivalent!) per tonne of rock in the most recent exploration update.
Indeed, impressive drill results, and the exceptionally high silver grade is very intriguing. This silver-rich zone will also be the main focus of the next few drill holes, and Southern Silver is currently raising CA$5M at $0.40/share to top up its treasury and fund its 40% share of the exploration expenses. Electrum, Southern Silver's largest shareholder with a 36% stake, has confirmed it will participate pro-rata, and will maintain its equity interest at 36%.
The majority of the funds will be spent on additional drilling, but we would expect Southern Silver to do some more metallurgical test work as well, in an attempt to boost the recovery rates.
According to the company's met work, which was completed in 2015, 82% of the silver, 12% of the zinc and 86% of the lead were recovered in a rough lead concentrate, which was "upgradeable" to a concentrate with a lead content of 71.1%, which is absolutely great.
However, some more work might be needed on the zinc concentrate. While an initial recovery rate of 79% is fine, it resulted in a zinc concentrate with an average zinc grade of just 39.5%, which is way below the minimum requirement of zinc smelters. Southern Silver's preliminary test work was able to upgrade the concentrate to a 49.7% zinc grade (which does meet the smelter requirements) at a total recovery rate of 73-75%. As those 2015 tests were just the very first steps, I'm convinced the recovery rates will improve, boosting the economics.
The next catalyst for Southern Silver will be the completion of an updated resource estimate, which will be released in the third quarter of this year.
This should result in a meaningful increase of the total resource at Cerro Las Minitas, and I wouldn't be surprised to see Southern Silver increase its exploration target to 20 million tonnes containing 80-120 g/t silver and 4-8% zinc-lead.
Elsewhere in the lead-zinc space, Vendetta Mining Corp. (VTT.V) is planning to release a resource update on its Pegmont lead-zinc project in Australia within the next few weeks. The company has made tremendous progress in the past 18 months as it has now successfully applied the Broken Hill geological model on the deposit. Rather than having just one lead-dominant lens, Pegmont now seems to be a multilens project with a zinc grade that should be increasing from now on.
The upcoming resource update will very likely contain 7-8 million tonnes of rock at a lead-zinc grade of 8-9%, and should be seen as an interim update before this year's 12,000-meter drill program designed to increase the tonnage before commissioning a preliminary economic assessment, which will be published by early 2018.
Farther north, Comstock Metals Ltd. (CSL:TSX.V) is gearing up for what could be a busy second half of the year. No resource update is expected in the second semester, but Comstock will very likely start another drill program on its Saskatchewan-based Preview SW gold project.
This project already has a compliant resource estimate containing in excess of 425,000 ounces of gold at an average grade of just over 1.6 g/t (which is really good for an open pit project as it is very shallow and located close to surface), but it looks like there's much more to be found there.
The company's winter drill program consisted of almost 1,800 meters in eight drill holes, of which the assay results of the first three holes have already been released. These holes were drilled at the Preview North zone, and with assay results of 5 meters at 10.3 g/t gold, 11 meters at 1.28 g/t gold and 18 meters at 1.03 g/t gold, it's pretty clear the company is onto something here. What makes these drill results even more important is the fact the North zone is located almost 3 kilometers away from the Preview SW deposit, which hosts the 425,000 open-pittable ounces.
This is a great testament to the prospectivity of the land package, as no less than six known gold zones have been identified on Comstock's property along the structural trend where the current resource is located. According to CEO David Terry, the company is designing a summer exploration program, and I expect to see an announcement on this summer program shortly.
Not only is Comstock planning an aggressive drill program, it might also have another look at the metallurgical test work for the Preview SW mineralization. Earlier met work confirmed an average gold recovery rate of 90-93%, which is excellent by any standard (keep in mind the average grade of the open pit is also high compared to similar projects). It's worth figuring out if there's any possibility to add a few percent points to the recovery rate. After all, a 1% increase in the recovery rate will result in the production of approximately 4,000 additional ounces with no increase in operating expenses. This would add US$5 million to the bottom line on a pre-tax basis.
Even though I particularly like the Preview SW project, we shouldn't forget about the company's asset in Canada's Yukon Territory. Comstock's QV project is located right across the Yukon River from Kinross Gold Corp.'s (K:TSX; KGC:NYSE) White Gold project, which was recently vended into White Gold Corp. to create a major Yukon-focused gold exploration company. This will ignite the area's activity, and both Kinross and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) are 19.9% shareholders in White Gold Corp. The area becomes very interesting in terms of consolidation with big players engaged.
The QV project hasn't had the same amount of drilling as the Preview SW project in Saskatchewan, but previous drill programs revealing 90 meters at 2.34 g/t gold, 56 meters of 1.28 g/t gold and 82 meters containing 1.08 g/t gold confirm Comstock Metals is drilling in the right spot. One of the main priorities will be to follow up on the western and eastern part of the VG gold zone, which is just one of the four high-priority exploration targets. Comstock Metals has used RAB drilling as its preferred drill method to reduce its exploration expenses per drilled meter, but will have to switch to RC and diamond drilling if it wants to increase its in-pit Inferred resource estimate of 230,000 ounces gold at a grade of 1.65 g/t.
With in excess of 650,000 NI43-101-compliant ounces of gold Indicated and Inferred in the ground, and the potential to find a multiple of that, Comstock Metals should be trading much higher than the CA$10 million it's trading at today.
Thibaut Lepouttre is the editor of Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.
Disclosure:
1) Thibaut Lepouttre: I, or members of my immediate household or family, hold long positions in the following companies mentioned in this article: Vendetta Mining and Comstock Metals. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a business relationship with the following companies mentioned in this article: Vendetta Mining, Comstock Metals. I determined which companies would be included in this article based on my research and understanding of the sector.
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