Gold and Silver miners (Jr and Exploration)

[Edge83]

Zinc, The Bulls Are Circling And Major Miners Hungry

by Ron Struthers

Summary

The zinc market is in a supply deficit, approx. 0.35 million ton shortfall.

Zinc is really why Silver Bull Resources is so promising.

Silver Bull has 90 million oz of silver and 4.67 billion lbs of zinc.

Zinc has the most bullish fundamentals of all metals. The market is in a supply deficit, with a 350,000 ton shortfall predicted this year by the Lead and Zinc Study Group. This supply deficit is expected to continue because of mine closures and not enough new mines and expansion coming on stream quick enough. There are very few large and advanced stage zinc deposits, but Silver Bull Resources (NYSEMKT:SVBL) has one of them and seems to be very undervalued.

The bullish fundamentals become obvious when looking at the long-term price chart above. In August, zinc made new highs to US$1.40 per pound. The chart below indicates LME inventories of zinc are running near empty.

The next chart from Wood Mackenzie shows supply in blue and demand in the red line; hundreds of thousands of tons of zinc concentrate have come offline in the past few years. You can see the supply deficit looks to grow wider.

There are four near-term projects I have heard about that could help the supply problem. I believe these new mines are simply too small and not enough to fill the gap.

Rampura Agucha mine in India is the world's largest zinc mine and is expanding.
Gamsberg Zinc Mine, South Africa - Phase 1 expected in mid-2018 will see the production of 4 Mtpa of ore, resulting in zinc concentrate of 250,000 tpa.
Dugald River Australia - The optimized mine plan will support a 1.7 Mtpa operation with annual production of around 170,000 tonnes of zinc and zinc concentrate, plus byproducts expected to start mid-2018.
Antamina Copper-Zinc Mine, Peru - The mine is expected to produce 340,000-350,000 mt of zinc in 2017, up from an estimated 170,000-180,000 mt in 2016.
Latest Zinc Outlook for 2016 - another deficit - 14.33 Mt demand and only 13.98 Mt mine supply.

World usage of refined zinc metal is expected to increase by 3.5% to 14.33 million mt in 2016, primarily driven by a further 4.5% increase in China with continued infrastructure investment.

A sharp forecast fall in ex-China zinc mine production of 9.4% is due to a combination of mine closures and recently announced production cutbacks. A significant predicted 46% reduction in Australian production is a consequence of the closure of MMG’s 500,000-mt/y capacity Century mine in August last year, cutbacks at Glencore’s (OTCPK:GLNCY) operations at Mount Isa and McArthur River.

Production is also expected to be lower in Ireland, where the Lisheen mine closed in November last year, India, Kazakhstan, the Democratic Republic of Korea, Saudi Arabia and the United States, mainly as a consequence of the suspension of operations at Nyrstar’s (OTCPK:NYRSY) mid-Tennessee mines.

Chinese imports of zinc concentrates are expected to be significantly lower than the 1.37 million mt recorded in 2015. Global refined zinc metal production is predicted to increase by 0.5% to 13.98 million mt in 2016 with a forecast 4% increase in China being largely balanced by an ex-China reduction of 2.3%.

Zinc is the "Bull" in "Silver Bull Resources"

Silver Bull Resources TSX: SVB OTCQB: SVBL

52-week trading range $0.08 to $0.22

Shares outstanding 199 million approximate (includes recent financing)

The number one metal on the Major Miner's shopping list is zinc, and Silver Bull Resources has to be on or near the top of that list. It should be for investors as well, because of these reasons:

Silver Bull's Sierra Mojada, Mexico, has a lot of silver at 90 million ounces measured and indicated but more so zinc with 4.67 billion pounds. At today's metal prices, the silver is worth about $1.5 billion and zinc $6.5 billion.
It has only scratched the surface as these 90 million oz of silver and 4.67 billion pounds of zinc are in the near surface oxide material that can be mined via open pit. It has only just begun to explore the deeper and probably richer sulfides of the deposit. Recent channel samples confirm a new massive sulfide zone grading up to 1,315 g/t silver, 12.8% copper, 18.3% lead and 42% zinc.
It has just begun a 2,000 meter drill program and is well funded, recently raising about $1.7 million for exploration work.
The market cap of about C$28 million is very cheap when you consider the resources, high zinc grade and the advanced stage of its project.
Project Details

Sierra Mojada, Coahuila, Mexico, 100% owned and 4,715 hectares (11,651 acres)

Sierra Mojada is located in a historical high grade silver, lead, zinc mining district discovered in 1879. Current resources are near the base of the mountain, near bottom and right in this picture.

The project has a NI43-101 compliant measured and indicated global resource of 58.7 million tonnes grading at 3.6% zinc and 50 g/t silver for 4.670 billion pounds of zinc and 90.8 million ounces of silver.

Within the global resource, discreet high grade zones of silver and zinc mineralization occur. A high grade measured and indicated "Zinc Zone" of 10.03 million tonnes at an average grade of 11% zinc at a 6% cutoff for 2.426 billion pounds of zinc. A high grade measured and indicated "Silver Zone" of 19 million tonnes at an average grade of 102.5 g/t at a 50g/t cutoff for 62.6 million ounces of silver.

The high grade silver and zinc zones are shown in the table below at various grade cutoffs:

Last week SVB released news that provides a strong clue it has discovered a very high grade area.

"Silver Bull Identifies a New Massive Sulphide Zone Grading up to 1,315 g/t Silver, 12.8% Copper, 18.3% Lead and 42% Zinc at the Sierra Mojada Project, Coahuila, Mexico."

Some highlights from the channel sampling program include:

Sample 25736 @ 1,130g/t silver, 22% zinc, 3.26% lead, 12.8% copper.
Sample 25727 @ 1,315g/t silver, 0.05% zinc, 9.0% copper.
Sample 25735 @ 713g/t silver, 3.4% zinc, 0.14% lead, 1.1% copper.
Sample 25805 @ 491g/t silver, 24.7% zinc, 1.6% copper.
Sample 25739 @ 495g/t silver, 7.09% zinc, 2.68% lead, 1.06% copper.
Sample 25728 @ 392g/t silver, 0.4% zinc, 1.8% copper.
Sample 25732 @ 329g/t silver, 42% zinc, 3.2% lead, 1.65% copper.
These are extraordinary grades (shown below in lower left circle) and probably represent a large sulfide deposit. The current open pit resource is likely the upper oxide resource of a very large system below.


Shown above from a map on its web site, the new sulfide zone lies within a 1.4 kilometer long, east-west trending "chargeability high" identified through a gradient Induced Polarization (IP) survey. This east-west trending zone hosts two other zones Silver Bull has identified with sulfide mineralization which grade up to 690 g/t silver, 35% zinc, 19% lead and 1% copper and also includes Silver Bull's only significant sulfide drill hole intercept of 8.45m @ 57g/t silver, 5.45% lead, and 16.98% zinc.

The fact the only sulfide drill intersect (B11144) and the recent high grade channel samples correlate with the chargeability high is a strong indication the IP survey has accurately found the sulfide zone.



The IP survey has identified this sulfide zone and better still is the fact the new zone of massive sulfide is accessible via existing historical underground workings. This means it can easily access this for underground drilling to exploit the real potential here, so interesting times have arrived as drilling has started.

Summary

Last financials show about $350,000 in cash and no long-term debt. Since then, SVB closed its 8 cent financing of about $1.7 million with two tranches in mid-July and the last bit on August 4th. A Sprott managed fund participated for 2.5 million units.

There are several key elements I like about this project:

It has a high grade zinc area and a high grade silver area. This gives development flexibility to focus on production of one metal over the other if there is a price advantage.
When you combine the great location, infrastructure, advanced stage of the project and cheap valuation, it is quite unique. Giving half value for zinc and half for silver, the silver is only valued around US$0.13 per ounce and zinc virtually nothing at ¼ a cent per pound.
It appears it is just now discovering the high grade core of this system. It reminds me a lot of Western Silver where we made over a 1,000% gain on that investment. I am not saying Silver Bull will do this as well, but this is what is similar that led to those gains. Western Silver developed its Penasquito project for many years in Mexico before it found the high grade core of the system and that enticed Glamis Gold to buy it out in 2006 (now Goldcorp (NYSE:GG)).
You can see by SVB's results that we are looking at very high grade material and it is quite common in this district. Historically, district ores have been selectively mined, mostly by Penoles and Asarco for high grade to be directly shipped to smelters. There has never been a mill in the district to concentrate lower grades.
This should turn out to be a very attractive takeover target for a major because of its large size and high grade. Mineralization starts at or near surface, so strip ratios and costs will be low.
The company has just initiated the first drill program to target the sulfide part of the deposit, and looking at the IP survey, it becomes quite evident that the likelihood of this has been very large and high grade is very probable.
One of the main reasons the stock has seen considerable weakness is that Coeur Mining (CDE) (most of you know of) was a major shareholder. However, a change in direction by the Coeur board of directors to divest in junior exploration stocks led to a liquidation of their holdings in Silver Bull, resulting in price pressure on the stock over the past year or so.

At 14 cents, the market cap is about Cdn$28 million. There are not a lot of significant zinc companies, but some new ones have focused on zinc in the last few years. Here is a few we can use as comparables.

The most advanced junior that could go to production by 2020 is Arizona Mining - 302M shares X $3.12 = $942M market cap. Its project in Arizona has 72 million short tons at 4.3% zinc, about 6.1 billion pounds of zinc.

Zinc One (OTCPK:ZZZOF) - 58M shares X $0.45 = $26.1M market cap. It has about ½ billion pounds in a historical resource of 1,007,796 tonnes at 21.61% zinc at its Bongara Mine in Peru and a zinc exploration project in B.C.

Pine Point Mining (OTCPK:DNLYF) - 141M shares X $0.28 = $39.5M market cap. It has advanced its Pine Point project in NWT to pre-feasibility with 25.8m tonnes M&I at 2.9% zinc for 1.6 billion pounds of zinc.

Canadian Zinc Metals (OTCQB:CZICF) - 163M shares X $0.25 = $41.8M market cap and has an indicated resource of 19.6 million tonnes at 8.2% zinc for 3.54 billion pounds of zinc.

Arizona Mining is much further along but gives you an idea what a large zinc deposit could be worth. Silver Bull may be there in a couple years. Zinc One has a pretty small resource at this time to be a good comparison.

Best comparable would be Pine Point but it only has 1.6 billion pounds of zinc, and Canadian Zinc is close at 3.54 billion pounds but only in the Indicated category. In both cases, these companies are valued about 2 times higher than Silver Bull.

Risk Factors

Junior exploration stocks are volatile and risky by nature. Weak market conditions can lead to poor liquidity making it difficult to sell positions. Silver Bull can be influenced by zinc and silver prices both on the upside and downside. Poor exploration results could lead to a sell-off in the stock, and to fund exploration, companies have to continuously raise more equity financing that can lead to more dilution.

A key for Silver Bull will be the forthcoming drill results. I see the risks on this drilling as fairly low because it will start drilling underground and collared in known mineralization. Therefore, the drill core will hit, but what is unknown is for what length and overall grade. The only sulfide drill hole hit 8.45 meters @ 57g/t silver, 5.45% lead, and 16.98% zinc. I am expecting to see grades this good and better and also intersect longer than 8.45 meters.

One previous drill hole and channel samples have proven the validity of the IP survey in identifying mineralization, so odds suggest we can expect the same in the current drill program.

On the chart next page, the stock broke from its base on the recent channel sample news and is attempting to break over the 200-day MA. I see some resistance from current prices to about 16 cents, but once through that, it could more easily move up to around 25 cents.


I bought shares in a recent private placement and on the market.

Disclosure: I am/we are long SVBL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

https://seekingalpha.com/article/4105511-zinc-bulls-circling-major-miners-hungry