Southern Silver Exploration: Seeking to emulate the success of Western Silver

The similarity in name between Southern Silver Exploration and Western Silver is no coincidence. Both were early exploration companies incubated by the Manex Resource Group with the same long term game plan; namely to find and develop a world class deposit to the point that it would attract a takeover.

Western Silver did precisely that. It discovered and advanced the Peňasquito project, taking its share price in the process from C$0.60 in 2002, when Manex first became involved, to C$37+ by 2006 when the company was taken over, firstly by Glamis Gold (in a share swap) and then by Goldcorp. Peňasquito is now Goldcorp's flagship project, has proven and probable reserves of 17.8M oz of gold, 1,070M oz of silver, 7.2M lbs of lead and 15.9M lbs of zinc and will be Mexico's largest open pit mine.

Manex is now seeking to emulate this success with Southern Silver, applying a similar mix of people and properties to its operations.  Three of Southern Silver's directors were formerly directors of Western Silver, while the Chief Geologist is Adrian Robles Salazar, the geologist who found Peňasquito.  Southern Silver is currently advancing 2 large projects in Mexico and 2 just over the border in the USA.  All four are in historic mining districts, hence the company's tag line; "bringing new technology to historic mining districts".

Southern Silver's Projects in Mexico and the US

Manex applies stringent selection criteria to the projects of the eight companies under its umbrella.  The projects must be in demonstrated mineral rich areas in politically stable countries, close to excellent infrastructure and have the potential to become world-class.  Ideally they should also be 100%-owned (or at least majority-owned) and have the potential to be district in scale.

Southern Silver's Minas de Ameca project certainly fits the bill.  It is a large copper/gold/silver project in Jalisco state some 80km south-west of Guadalajara City, and runs along strike along the prolific Sierra Madre mineral belt which hosts most of the precious mineralisation in Mexico.  From 2005-2007 Southern Silver accumulated a number of claims, consolidating a 337 square kilometre land package in the district; the opportunity to acquire such sought-after ground came thanks to Western Silver's reputation and Southern Silver's associations and contacts.  It has since relinquished some of the claims in order to focus on the 131 square kilometre San Luis claim, where copper/gold/silver mineralisation is hosted in quartz-hematite vein systems.

To date 4832 metres have been drilled in 20 core holes testing to depths of 400 metres and a 10 line-km gradient IP geophysical survey has been completed. Results have indicated strongly mineralised intervals with grades in excess of 1g/t gold and 1% copper ranging from 1 to 10+ metres thick.  Highlights have included 3.5m averaging 5.07g/t gold, 49.8g/t silver and 4.32% copper and 6.85m of 2.03g/t gold, 14.35g/t silver and 0.84% copper. A 1500 metre 10-hole drill programme is now underway to test on-strike and down-dip extensions of the previously reported higher grade drill intercepts. 

Earlier this year Southern Silver also acquired the San Juan Project in Sinaloa.  The 18.5 square kilometre project lies on the Sierra Madre Mineral Belt some 3.5km from paved highway, 80km from the nearest city and 30km from US Gold's Magistral Project. It was previously mined by local small scale miners and latterly had been optioned to US Gold who had drilled 27 holes.  Results published by US Gold in September 2008, including a 3 metre near-surface interval of 27.3g/t gold, and a 27 metre interval at 3.9g/t gold, suggest high grades.  Although Southern Silver believes that the previous data are relevant and reliable the next step will be to verify the estimates; mapping and preliminary drill targeting are underway to prepare for drilling later in the year.

Southern Silver's US projects are located in the same mineralisation as San Luis and San Juan, both less than 150km north of the Mexican border.

The Oro project in New Mexico is a 11.5 square kilometre gold, silver, copper, lead and zinc project in the historic Eureka Mining District which is part of a belt of major, precious-metal-rich skarn and Carbonate Replacement Deposits (CRDs) that extend south into Mexico. Historic production from the district between 1880 and 1961 totalled 2.9M lbs of lead, 1.7M lbs of zinc, 0.5M lbs of copper, 0.45M ounces of silver, and 5,000 ounces of gold in of oxide ore.  Mining has taken place at Oro sporadically from 1877 to the 1960s but with little modern exploration.

Nonetheless surface samples at Oro by Southern Silver had revealed high grades (up to 23.8g/t of gold) and there are known to be geological similarities between Oro and the CRD camps at Santa Eulalia, Mexico (which produced 50M tons of 15%Pb+Zn, 310g/t Ag) and Bisbee, Arizona (7800 Mlbs Cu, 2.8 Mozs Au, 102 Mozs Ag, 324 Mlbs Zn) in Arizona.  So last year Southern Silver embarked on five-hole, 1645 metre drilling program to test the targets.  A report issued in April 2010 detailed the findings from the company’s exploration program to date. It concluded that there is good exploration potential for three types of deposit on the property (bulk-tonnage, intrusion-related gold mineralization, copper porphyry potential at depth and blind polymetallic replacement/skarn deposits), and it recommended further exploration.  Southern Silver is now seeking a JV partner to help fund Phase 2 which will comprise geophysics and a minimum of 6 further core holes.

The company has already been successful in attracting a partner to its Dragoon laramide porphyry copper/molybdenum property in Arizona some 100 kilometres southwest of Tucson.  In September 2009 it signed a farm-in agreement with Freeport McMoRan Exploration Corporation whereby FMEC could acquire up to 70% ownership of the 12.8 square kilometre property by spending $3-million on the property before December 2012. It is expected that FMEC will begin drilling the first 900 metre hole on, or soon after, May 17th.  Freeport McMoRan is the world’s largest publicly traded copper company, so the JV seems a good endorsement of the quality of the property. 

Future Plans

Southern Silver's plans for the remainder of 2010 are to continue to drill San Luis at Minas de Ameca with a view to defining a resource there, to drill 1200 metres at San Juan to verify US Gold's findings, to find a JV partner in New Mexico to assist in funding the next round of exploration and to monitor Freeport's exploration program at Dragoon.  Another acquisition may also be on the cards.  For the moment the company holds C$750,000 in cash and has outstanding warrants which may increase the balance. The program for 2010 is anticipated to cost Southern Silver $350,000.  The long term exit strategy is to advance the projects to the point where they are attractive for sale to a mid-tier or major developer.

Analysis

For the moment Southern Silver remains a classic early exploration company with no defined resources. As such any investment must be highly speculative, but Southern Silver, through its people, its project selection criteria and its relationship with the Manex Resource Group has sought to improve the odds on success.

Firstly it has focussed on historic mining areas where there has been little modern exploration.  Mexico has a 500 year mining history and a great wealth of minerals; its silver belt has been the most prolific in the world with a cumulative production of over 10 billion ounces.  However the combined effect of its restrictive nationalistic policies from the mid-1960s to 1992 (when they were thoroughly overhauled to permit foreign ownership) and low commodity prices through the nineties and early noughties has meant that there has been little application of modern exploration techniques until recently. 

Secondly Southern Silver has picked projects in countries which are politically stable and with favourable mining climates.  Both Mexico and the US benefit from stable, transparent mining codes, a skilled labour force, a ready availability of equipment and strong mining traditions.

Thirdly the Manex Resource Group provides a number of central legal, administrative, investor relations and technical services to all its companies including Southern Silver.  This reduces the overhead and regulatory burden on each of its companies enabling Management to spend more money and time on exploration and to maximise dollars in the ground.  The Group has also been very successful in assisting in raising funds; to date it has raised $250M for its companies since its formation in 1997.  Several of the Group companies, including Southern Silver are also listed on the Frankfurt Stock Exchange which has attracted an influx of German capital.  As Liana Shahinian, Director of Investor Relations, and fluent German-speaker said, "it is best to take the company to Germany, rather than expect German investors to come to us".  Group companies also benefit from good contacts and networks enabling them to hear early on about interesting opportunities.

Finally Southern Silver has attracted good people.  Adrian Robles Salazar, the geologist who discovered Peňasquito works full-time for Southern.  The company's President, Lawrence Page, has been involved with the discovery and development of half a dozen mines including David Bell, Peňasquito and Calpine/Eskay Creek. The former regional manager for exploration for Teck Corporation’s Mexican subsidiary, Roger Scammell, has recently been appointed as Senior Geological Advisor.  Collectively the directors, through their connection with Manex have a track record of successfully raising money and of using this to find projects and turn them into saleable assets. 

Western Silver was a particularly conspicuous success, eventually realising C$1.2bn for its shareholders.

For the moment Southern Silver has a market cap of just C$4.5M. Can Southern Silver, with a similar mix to Western Silver of people and projects, follow in its footsteps?