In recent articles on silver (“Ag”) / gold (“Au”) juniors I’ve pointed to the very substantial sell-off since January’s ATHs in the underlying metals. I won’t detail the carnage, but I estimate nearly 40% of the 150 silver names I follow are down at least -60% from 52-week highs, and 62% are down -50%+.
Calling a bottom is of course very difficult, Ag topped $121/oz and is now at ~$60. I thought there would be stronger support at $60, but last week the near-month futures contract hit $55. I’m not saying the bottom is in, but I believe we’re close. For readers bullish on Ag/Au over the next quarters/years vs. days/weeks, please continue reading.
A lot of speculative excess has been flushed out while structural demand remains intact. Central bank gold buying, most notably China continues, persistent/growing fiscal deficits, geopolitical uncertainty, constrained mine supply, and ever-rising industrial silver demand are powerful tailwinds.
On-shoring of critical materials/metals in the U.S. has been a major theme for a year and a half. For instance, the creation of Project Vault in February, a critical mineral reserve funded by a $10 billion Export-Import Bank loan plus another $2 billion in private investment.
In the following table are more U.S. initiatives tied to funding, fast-track permitting, and/or tax incentives. In total, $10s of billions are available for U.S. projects of merit, ones that can reach initial production this decade.
In my view, a clear potential winner from government support is Blackrock Silver (TSX-v: BRC) (OTCQX: BKRRF) with its flagship Tonopah West project is in Nevada, USA, the world’s top mining jurisdiction (ranked #1 in the most recent Fraser Institute Mining Survey).
Tonopah West sits in the historic Tonopah Silver District, part of the larger Walker Lane Trend. In late March, the Company announced an updated PEA that meaningfully de-risks the Project. Consider the above enhanced preliminary economics.
Post-tax NPV(5%) came in at C$603M, but that’s using a conservative US$31/oz Ag + US$2,700/oz Au. Studies around the same time by Pan American Silver, SilverCo Mining & Denarius Metals used $44 to $50/oz Ag. Last week New Pacific Metals used $45/oz in a PEA.
Blackrock’s PEA press release showed that, all else equal, at US$66.9/oz Ag & $4,554/oz Au, post-tax NPV is roughly ~C$2.1B with an IRR of 79% and a 1.4-year payback. This means at $66.9/oz, (currently ~$60/oz), the ratio of post-tax NPV to upfront cap-ex is an amazing 8.2 to 1.
Readers please note, upfront cap-ex for the Project is only US$190M. I mentioned above that $10s of billions in financial support is available. Yet, $10s of millions (just 0.1% of that total!) would be very meaningful to Blackrock, especially if it were to come via free-money grant(s).
Add to government assistance the potential for pre-paid off-take agreements to help fund the Project, and the need for onerous equity raises diminishes. Yes, private placements will continue, but hopefully not large ones, and not all at once.
Having said that, if a prominent strategic investor (a mining company, Eric Sprott is already invested) wanted to acquire a 9.9% equity stake, I imagine management would consider it if the terms were attractive (perhaps no warrants, possibly at a premium to market).
On July 21st, Barrick Mining announced a 9.9% stake in a junior at a 30% premium to market with a half warrant. Many more investments like this one are coming in N. America…
The enhanced PEA showed very good recoveries (91.0-91.5% Ag, 96-97% Au), with clean metallurgy (silver + gold only, no base metals). Importantly, the updated resource accompanying the PEA shows nearly a third of total ounces in the Indicated category.
Readers should note, mine life was extended from 8 to 11 years. In my view, an acquirer or strategic partner could extend it to 15+ years, and possibly increase annual production, (subject to further drilling success).
Given ample and growing government resources, management, led by CEO Andrew Pollard, announced the engagement of Global Frontier Advisors LP (“GFA“), a Washington, D.C. based strategic advisory firm of former military officers, diplomats, and intl. executives, in the proactive pursuit of federal/state financial support, and tax incentives.
GFA will help identify & facilitate “non-dilutive government funding, procurement, and financing pathways” that Tonopah West may be eligible for, potentially including programs administered under the Defense Production Act, the Dept. of Energy, the Export-Import Bank, and the International Development Finance Corp., among others.
In addition, state-level incentives, tax credits, and fast-track permitting may be available in Nevada. The Company anticipates breaking ground on underground development in 2027, with an aim to commence test mining and a large-scale bulk sample in 2028.
President & CEO Andrew Pollard commented: “Silver is a critical input to solar energy, defense systems and the technologies driving America’s industrial future, and yet the U.S. still imports the majority of what it consumes. Tonopah West is exactly the kind of high-grade, domestic project that can help close that gap. We’re leaving no stone unturned in pursuing the federal and state support available to us, giving us the potential to move faster and more efficiently to bring Tonopah West online.“
This article is mainly about government support initiatives, which I believe are promising, albeit likely to be a time consuming effort. It’s important to circle back to the strategic investor track. In my view, the most likely acquirers or strategic investors are;
Nevada Gold Mines (a Newmont/Barrick JV), Agnico, AngloGold Ashanti, Pan American Silver, Fresnillo, Alamos, Coeur, Hecla, Kinross, Equinox Gold, First Majestic, Hochschild, I-80 Gold, B2Gold, and SSR Mining — and one should not ignore royalty/streaming giants like Franco-Nevada & Wheaton Precious Metals.
If one considers Cu-heavy names that dabble on the precious metals side, one cannot rule out Freeport McMoRan, BHP, RIO, Glencore, and the Grupo México/Southern Copper/ASARCO conglomerate (considerable assets in neighboring Arizona).
Mid-tier Polish producer KGHM operates in Nevada. Lundin Mining and HudBay Minerals could potentially care. I just name-dropped over two dozen groups, some of which CEO Pollard is talking with, but I don’t know which ones.
Bottom line –> with the real possibility of government support, bolstered by clear and strong on-shoring initiatives, plus the real potential for a strategic investor, the outlook for Blackrock appears bright. In my opinion, the low upfront cap-ex hurdle + ultra-high grade profile places Tonopah West in the top decile of global projects.
I think Ag-heavy juniors will bounce back from being down 50-60%+. If so, the shares of Blackrock Silver (TSX-v: BRC) / (OTCQX: BKRRF) could offer a compelling, albeit high-risk, buying opportunity.
Disclosures/disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Blackrock Silver, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is not to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market-making activities. [ER] is not directly employed by any company, group, organization, party, or person. The shares of Blackrock Silver are highly speculative, and not suitable for all investors. Readers understand and agree that investments in small-cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making investment decisions.
At the time this article was posted, Blackrock Silver was an advertiser on [ER]. Peter Epstein owned shares in the company, acquired in the open market.
Readers understand and agree that they must conduct due diligence above and beyond reading this article. While the author believes he’s diligent in screening out companies that, for any reason whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
Comments
Log in or sign up to join the conversation.