Kaiser Bottom Fish OnlineFree trialNew StuffHow It WorksContact UsTerms of UseHome
Specializing in Canadian Stocks
SearchAdvanced Search
Welcome Guest User   (more...)
Home / Works Archive / Trackers
Trackers
 Thu May 18, 2017
SVH Tracker: Recommendation Strategy for Arizona Silver Exploration Inc
    Publisher: Kaiser Research Online
    Author: Copyright 2017 John A. Kaiser

 
Arizona Silver Exploration Inc (AZS-V: $0.61)
RSProfileSearchWebTreeForumSEDARQuoteIPV

SVH Tracker - May 18, 2017: Recommendation Strategy for Arizona Silver Exploration Inc

Arizona Silver Exploration Inc is a new Good Relative Spec Value Buy at $0.61 based on drilling generated evidence that a substantial extension of the previously mined high grade Ramsey silver vein system in Arizona, hypothesized on the basis of geophysical data, is present under gravel cover on the other side of a recently recognized right lateral, dip slip fault that stymied past miners from 1921-1962. A drilling program began in early May on the blind, never drill tested target to the northwest of the historic Ramsey workings. On May 11, 2017 Arizona Silver reported visual descriptions of the first two RC holes which effectively confirmed that the host geology of the Ramsey vein was present beneath just under 100 m of alluvium. Given that the stock has doubled during the past couple months I would normally wait for assays to confirm that grade did not fade away in the fault offset extension of a known zone. However, Arizona Silver has only 33 million shares fully diluted and a 100% net interest, which means that at $0.61 the market is assigning a value of only $20 million to the Ramsey project.

I am recommending the stock now because the intersected geology is a very important proof of concept, and I will be very surprised if we do not get assay results that push the stock towards $1 where the project still has only a $33 milllion implied value with lots of running room as discovery delineation gets under way. The next major hurdle for Arizona Silver, if assays confirm the discovery, is to pull in a $5 million financing ahead of mid July when a private placement of 7.5 million shares at $0.20 comes free trading. Thankfully the junior has avoided warrants, which means that the clip and flip for a free lunch strategy so beloved by this sector's self-righteous pump and dumpers is not going to be a destabilizing market factor. The stock is breaking into new high territory since completing its qualifying transaction in late 2016, and while there has been good liquidity during the past couple weeks, Spec Value Hunters should not chase the stock beyond $0.70 ahead of assays expected in the next couple weeks.

The first two holes have been sent for assays on a rush basis, with results possible during the last two weeks of May. I participated in a site visit on May 16 that was scheduled in late April well before drilling started. A core rig has been brought onto the Ramsey property to twin and extend hole #2 so as to get a better understanding of the geometry of what appears to be a major blossoming of the Ramsey vein system. The core hole had not yet intersected the promising interval of RC hole #2, so there was no opportunity to gain additional insights through my site visit, but it did enable me to better understand that there is a lot more going on at Ramsey than just a high grade silver vein with a lower grade halo that lends itself to an open pit mining scenario.

The Ramsey vein is an epithermal deposit whose 2-3 metre high grade interval sits in the fault contact between older sediments and a younger Cretaceous (145-65 million years ago) rhyolite volcanic. The mineralization is estimated to be only about 19 million years old and is believed to be related to the same mineralizing forces that created the gold-silver deposits in Nevada's Walker Lane in whose southeast limit Ramsey sits. In the Ramsey workings, where Arizona Silver drilled four core holes last year to generate support for the bulk tonnage scenario, disseminated silver mineralization extends 6-24 m into the hanging wall rhyolite and 30-45 m into the footwall sediments. Lead is present and to a lesser degree zinc. Historically only about 15,000 tonnes of 30 plus opt silver ore was mined from the underground workings. During the seventies and eighties the Ramsey project was looked at as a possible open pit, heap leach operation but since then the project has been dead until in 2015 Greg Hahn started researching Arizona archives. Only one hole appears to have been attempted on the other side of the fault and it was abandoned after 100 ft of alluvium.

Management led by CEO Greg Hahn thinks that the Real de Angeles silver-lead-zinc deposit in Zacatecas is a good analogue for what may be present at Ramsey. Real de Angeles was originally exploited as a high grade silver mine, but in 1982 it was put into production as a 10,000 tpd open-pit, flotation mill operation with a starting resource of 85 million tonnes of 74 g/t silver, 1% lead and 0.95% zinc.

The Ramsey vein system has a magnetite halo in its hanging wall which showed up in a VLF-EM ground geophysical survey. A much broader magnetic anomaly shows up on the other side of the fault, which led to the hypothesis that a tabular mineralized body 500 m by 500 m by 100 m thick is present, which at 2.5 specific gravity translates into a tonnage footprint of about 60 million tonnes. This is very similar to Real de Angeles except that it had only 6 metres of overburden whereas the Ramsey extension has 94 metres of alluvium cover. Management is hoping for a better bulk tonnage grade in the range of 3-4 opt silver compared to the 2-3 opt range for Real de Angeles which is now depleted.

A key reason for this Spec Value Hunter recommendation is the enormous upside that beckons should Arizona Silver deliver a version of Real de Angeles that grades in the 3-4 opt silver range. I have undertaken an initial Ramsey Outcome Visualization which imagines a discovery of 60 million tonnes of 125 g/t silver sitting under about 100 metres of alluvium which would have 241 million in situ silver ounces. I have mined this deposit at 10,000 tpd for a 16.4 year mine life and processed the ore with a flotation mill recovering only silver at 90% with 95% payable. I have assumed a $1.50 per tonne mining cost with a 5:1 waste to ore strip ratio which works out to $9/t mining cost, $15/t processing cost, and $2/t for other costs for total OpEx of $26/t (all figures USD except when noted otherwise). CapEx is assumed at $150 million and sustaining cost at $85 million which in my life-of-mine based DCF model I have expensed evenly throughout the mine life while CapEx is depreciated on a straight line basis. This mine model generates payable silver ounces of 12.5 million annually and 206 million over the mine life. The project has a 2% NSR but it can be bought out for $1.5 million so I have not included it. I used a 38% tax rate but it should probably be 42% to reflect 35% federal and 7% state income tax. For silver I used the spot price of $16.81 per oz. The result is a stunning after-tax net present value (NPV) of USD $438 million at a risk-adjusted discount rate of 8.5% and internal rate of return (IRR) of 48%. At the prevailing Canadian dollar exchange rate that translates into CAD $596 million.

That converts into $18.12 per share assuming no further stock or project interest dilution. But using the uncertainty ladder of the rational speculation model, the fair speculative value range for a project with this sort of potential outcome but still at the target drilling stage is $0.18-$0.45. If the recent news gets backed up by assays which support the visualized outcome, the project would shift to the discovery delineation stage where the fair speculative value is $0.45-$0.91 per share. I expect the stock to end up at the upper end of this range in the next couple weeks, though because of the S-Curve phenomenon that can kick in during discovery delineation, the stock could hit $13 over the next 12 months if additional drilling fleshes out the sort of deposit I imagine. This should not happen, but if it does, Spec Value Hunters can collect a substantial reward long before a 43-101 resource estimate or economic study arrives.

Because we are so early in a discovery play the initial Ramsey outcome visualization is really more what we hope to see emerge based on the geological context than an assessment of what is present. As more information emerges I will revise both the deposit and cost assumptions. What makes me so optimistic about the Ramsey project is that there appears to be much more to this story than a Real de Angeles clone. The Line 2 section reveals a substantial IP chargeability anomaly at a depth of 400 metres to the west of where RC holes #3 and #4 are being drilled, much stronger than the chargeability associated with the Ramsey vein system. Management has no idea what could be the basis for such an intense sulphide system or even what its age might be relative to the epithermal mineralization within the Ramsey vein. It cannot test this target until it has permits to build a road into this area, which will take 2-3 months. It's kind of interesting that Arizona Silver Exploration Inc along with Adamera Minerals Corp are among the few juniors who will be exhibiting at the core shack of the AEMA 2017 conference in Reno on December 4-8 where I will present the keynote in a Technical Session on "Growth Companies - Is Exploration back in style?" Neither of these companies at this stage have any core they would want to show off, but both are classic examples of rethinking old districts.


 
 

You can return to the Top of this page


Copyright © 2024 Kaiser Research Online, All Rights Reserved