For the small cap resource investor, the combination of a management board with mine-finding and development experience coupled with a great asset in a proven jurisdiction can make for a compelling proposition.
This is what's on offer at Cerro Las Minitas (CLM) in Mexico, according to Toronto-listed company Southern Silver Exploration Corp (TSX-V:SSV, OTCQX:SSVFF), which is advancing the 35,000 hectare (Ha) property.
Sitting in the Faja de Plata, Durango state, where mining has been carried out for centuries, the project is among the top ten largest and highest-grade undeveloped silver assets in the world. There are at least a dozen mines in the immediate area and the two largest miners in Mexico - Fresnillo and Penoles - are the firm's neighbours.
Avino (TSX-V:ASM) Silver & Gold Mines, which has two mines and four exploration projects, sits just 17 miles up the road. Now in the 37th year of production, the Avino (TSX-V:ASM) mine just reportedly churned out 649,569 ounces of silver-equivalent in its second quarter, up 42% on the first quarter this year. In 2016, the mine produced 2.7 million silver equivalent ounces.
The president of Southern Silver, Larry Page, who has been involved in bringing seven mines into fruition, including Hemlo and Eskay Creek in Canada, explains how over US$30 million has been poured into the company's CLM project (including costs for its acquisition and exploration) since 2011.
Part of the Manex Group
Southern Silver is part of the private Manex Resource Group, which provides professionals, services and exploration expertise to public companies, and Page points to the fact that around 16 years ago another Manex firm, Western Silver Corp, had advanced the Penasquito project in Zacatecas state, Mexico to the point where the then Goldcorp bought it out.
"Shareholders had a US$1.2 billion payday. The stock went from pennies to US$37 and we thought that was a good idea and we'd like to emulate that idea," said Page.
"We are well on our way to emulating that Western Silver success (at CLM)," he added.
A major milestone for the CLM asset recently came in the form of an independent preliminary economic assessment (PEA), which showed an underground polymetallic (silver, zinc, copper, lead) mine, which could throw off an impressive US$3.7 billion in revenues over a 15-year life.
The report used a base case price scenario of silver at US$21.95 per ounce, copper at US$3.78 per pound, lead at US$0.94 per pound and zinc at US$1.33 per pound.
The project would cost US$341 million to get up and running, have an internal rate of return (IRR) of 17.9%, and a 60-month pay-back period.
Higher value silver and lead output will be targeted in the first years, while lower silver-equivalent material, being zinc and copper dominant will be earmarked in the remaining seven. All-in-sustaining costs (AISC) came in at $US13.27 per ounce of silver-equivalent sold.
Notably, highlighted Page, the numbers also show that the proceeds from selling all the zinc, lead and copper from CLM would pay the costs of mining out the silver.
All the concentrates, which would be generated from any future mine (copper, zinc, lead and zinc) are currently highly in demand due to the globe's shift towards 'electrification' and green energy. Page believes this demand will only grow stronger.
A robust PEA
This robust initial PEA for CLM will inevitably lead to the next step in the project's evolution (towards feasibility) and deal-maker Page says his preferred option would be to joint-venture the project to a bigger player.
This would see the shareholders benefit from cashflow coming into the firm over its 15-year life, he explained, but also be part from the potential upside from increasing the resource, which is open at depth and along strike and very far from being finite.
"The devil's in the details though on that sort of a deal and it's how long you are carried for before you have to contribute and what is the percentage that you give up to attract the money and the expertise (from the major), and when you have to contribute to capex and opex, will the major assist you on banking?" explained Page.
He said talks on the project were already taking place with three companies, while Southern Silver is also due to have 32 meetings at the Beaver Creek precious metals conference in Colorado, with around a third of those with producing companies.
Meanwhile, it's important to note that the CLM project is not the only egg in Southern Silver's basket.
"This is just one leg of a three-legged stool," explained Page, who added that the company was also currently finishing the third of a six hole drill program at its Oro project, a formerly producing mine, in New Mexico, US.
Oro is a copper porphyry project surrounded by large groups mining for copper, a metal, which is also vital for the green revolution. The company said the results from the first two holes, recently published, were highly encouraging, and showed that deeper drilling was warranted.
The third arrow in Southern Silver's quiver is the Hermanas gold-silver project, 40km east of the Oro asset, which covers an area of epithermal quartz veining spanning an area of 4km by 3km.
Busy year ahead
So with around $8 million in the bank to cover its current exploration aims in New Mexico, and a robust PEA to showcase its CLM project, Southern Silver looks to have an exciting and busy year ahead.
Page said that CLM, if it comes to fruition, would be the eighth property he has put into production and describes it as potentially his 'swansong'.
He explained that any such exploration opportunity comes for investors with a high degree of risk but also the potential for big rewards.
"If management can de-risk the property so that it has merit and it has an asset that a major company wants then they should own that company because it will be transacted in the foreseeable future and there will be a payday!" he said.
Southern Silver Exploration looks like it could well be one for investors to put on their radars.
Contact the writer at giles@proactiveinvestors.com