Although the market is in a very bad mood about the Canadian junior resource sector, and seems to be dumping everything as year end approaches because everything is doomed to failure, Hercules Silver Corp stands out about how not every bottom-fish testing a geophysical anomaly needs to have a negative outcome. Hercules Silver Corp used to be called Bald Eagle Gold Corp which had a low sulphidation epithermal gold play in Nevada called Hot Springs which it sold in 2021 and then acquired the Hercules Silver property in western Idaho. This was a CRD zinc-lead-silver system with 28,000 m of historical drilling and the name was changed to Hercules Silver so that the stock can be promoted to silver bugs. To fund the silver pivot Hercules had to do a couple dilutionary financings including 30.7 million units at $0.08 in June 2022 and 28.8 million units at $0.20 in April 2023. The result was about 242 million fully diluted. This year the stock has traded mainly in the $0.20-$0.30 range but started to trade more actively in September when the junior rewarded shareholders with some high grade silver assays.
What was interesting about the September 8 news release was that it included a discussion about a blind copper porphyry target that had emerged from the 2022 field season. The southeastern part of the property has some copper smoke at surface which was untested, so this year in addition to swiss-cheesing the CRD target they drilled hole 23-05 to test an IP target beneath the copper soil anomaly. The IP anomaly also extends underneath the shallow CRD mineralization. On October 10 Hercules reported the copper discovery hole assays, 185.29 m of 0.84% copper between 246-431 metres, which included 45.33 m of 1.94% copper. There is also a modest molybdenum credit and the silver is 2.6 g/t. This blind copper porphyry system sits beneath the rhyolite hosted silver system into which over 300 historical holes have been drilled.
The copper grade so far looks high enough to support underground mining. This is the sort of outcome we have been hoping for from Tim Marsh's Bell Copper Corp but the extraordinary 1,200 m depth of the Big Sandy porphyry target in Arizona has turned that into a drilling slog. The Hercules project is now shaping up to be a blind copper porphyry district play. This development is significant because it involved a junior with enough stock out to qualify for a rollback and which did science based exploration work on the entire property, not just the high grade silver portion where the goal was to please silver bugs with flashy assays while waiting for the long awaited silver boom. This geology driven approach that looks at the big picture potential of a prospect is what discovery exploration is all about, and even though the CRD silver-zinc-lead zone has become irrelevant, I doubt the silver bugs will complain that lurking beneath the silver zone is potentially something far more valuable.
But what is even more significant is that a month later on November 6 the stock was halted for an announcement that Barrick was buying $23.4 million worth of stock at $1.10, a 37.5% premium from the prior day's close at $0.80. On the new fully diluted basis of 264.8 million that priced the Hercules project at $290 million. Barrick did this while assays for additional holes into the IP anomaly that represents the copper zone are still pending. Barrick now owns 33.6 million shares plus 6.8 million warrants. At Wednesday's $1.50 closing price Hercules had an implied value of nearly $400 million.
Finally, the discovery is significant because it reminds the market that when a major metal endowment is present in an area, it is worthwhile to rethink the bigger scale potential, as happened in 2015 after Richard Warke's Arizona Mining Inc had wasted $40 million demonstrating that the Hermosa-Taylor open-pittable silver oxide resource was worthless, and exploration VP Don Taylor started to investigate the zinc-lead silver sulphides at the base of the proposed pit limit. Out of this emerged a 92 million tonne deposit grading 4.2% zinc, 4.3% lead and 72.3 g/t silver (now bigger) which South32 bought in 2018 at $6.19 for $2.1 billion cash. This discovery also emerged from an extremely bearish market when everybody, including me, was blaming the malaise on the elimination of the uptick rule for short selling which turned the financial sector into a machine for stripping risk capital out of the resource junior market. Although daily value traded is higher today, the structural problems remain, and have been compounded by an anti-mining attitude against which Canada's government has failed to push back against, and has even worsened the situation by empowering First Nations to assert veto rights over Canada's mining future. To catch up on the structural problems, check out the first half of my Feb 15, 2013 Streetwise Interview: Can the TSX Venture be Saved?. You can also check out the Black Friday Short Selling Emergency Session. If you are a cynic you will recognize this as a sign of the dawning of a new age of discovery. |
