Dolly Varden Silver Corp (DOLLF)

[investor15]

Resource Opportunity Report on Dolly Varden Silver

Lawrence Roulston

Dolly Varden Silver Corp. (DV-TSXV)

Dolly Varden is reactivating an historic silver district in northern British Columbia. The company, with an experienced management team, controls a district which has four mines with extensive underground development in place. Previous work has outlined a multi-million ounce resource (albeit non-compliant with current standards). Beyond the present resource, there is excellent potential to greatly extend the known mineralized zones. On that basis alone, this company represents exceptional value.

The Dolly Varden story has another element that adds enormous upside potential. In simple terms, Dolly Varden is an analog for the renowned Eskay Creek mine. Eskay, located north of Dolly Varden along the same geological trend, was one of the richest silver-gold mines ever.

If this is indeed another Eskay, the presently known mineralized zones at Dolly Varden could be mere outliers for a much larger silver-gold deposit. Further evidence backing that premise would see the share price escalate.

Drilling is about to get underway in a program that is intended to validate and expand the historic resource and also test the broader Eskay theory.

The Dolly Varden district is located in the upper Kitsault Valley, 40 kilometers southeast of Stewart BC. Silver at Dolly Varden was first discovered in 1910. In 1915, a Chicago-based group financed a 23 kilometer narrow gauge railway from tidewater at Alice Arm to the site. With a railway, the operators were able to bring in equipment and supplies and develop a sizable mining operation.

Production began in 1919. The ore was so rich that it was sent without processing, by rail, to the port where it was shipped directly to smelters. Rising costs and a falling silver price saw the mine close in 1922. In its three years of operations, the Dolly Varden mine produced 1.5 million ounces of silver from ore with an average grade of 1,100 g/t (36 ounces per ton).

The railway was replaced by a road in the 1940s to support a 350 tonne per day milling operation at the Torbrit mine, located a kilometer north of the original mine. Torbrit began production in 1949. A silver-bearing lead concentrate was shipped out of Alice Arm until the mine closed in 1959. The Torbrit mine produced 19 million ounces of silver from ore with an average grade of 466 g/t (13.6 oz/ton), along with substantial lead and zinc.

In the 1960s through the 1970s, numerous claims in the district were held by various groups. From 1980 to 1985, several of the properties were assembled into one company for the first time. That private group attempted to develop the district, but was poorly funded and wasn’t able to accomplish much.

Mineralization at Dolly Varden was initially thought to be hosted in veins. Exploration in the early days consisted mainly of following the “veins”. In 1986, it was recognized that the mineralization at Dolly Varden was primarily related to volcanogenic massive sulphide (VMS) deposits, which opened up a whole new approach to exploration.

A small drilling program in 1989-90 was the first exploration recognizing the VMS model. Ironically, the geological crew was called off the project in 1990 following the Eskay Creek discovery. They were sent to the Eskay area to stake whatever they could in the midst of a staking rush following the Eskay discovery. The rush was triggered by a drill hole from Murray Pezim’s Prime Resources: Hole 109 encountered 208 meters that assayed 27 grams per tonne gold and 30 g/t silver.

No further work was done at Dolly Varden until a geophysical survey was conducted in 2010. In 2011, the present management team acquired the property from the estate of the former owner. A high powered team, recognizing the large-scale potential of the Dolly Varden district, came together to acquire the asset and reactivate the district.

John King Burns, chairman, has extensive experience in the global resource sector. He held senior positions with two global financial firms (Drexel Burnham Lambert Commodity Group and Barclays Metals Group) where he was involved in resource-oriented investments.

Ron Nichols, president & CEO, is a professional engineer with over 30 years of successful exploration and mine development experience in junior and senior companies. Mr. Nichols’ career includes 20 years with Cominco Ltd. during which time he was involved in the discovery and exploration of a precious metal deposit in northwest British Columbia which became a profitable mine. He was also involved in the re-start and operation of silver mine in Mexico.

Paul McGuigan, vp exploration, has 38 years of international experience in management of mineral exploration and mining operations. Much of that experience was focused on the Eskay and Stewart regions of northern British Columbia.

The other directors and the advisors bring a wealth of financial and mining industry expertise to the company.

Dolly Varden has a 100% interest in 95 square kilometers of mineral rights, covering two past producing mines (Dolly Varden and Torbrit) as well as two other mines which were developed but not mined (North Star and Wolf). In March, they completed the assembly of all of the claims covering the past producing mines and the prospective areas by securing an option to purchase the Musketeer claim.

The four mines have a total of 7 kilometers of underground workings and 631 drill holes. Resource estimates for the four mines compiled from the 1960s through the early 1980s outlined a total of 5.7 million ounces classed at that time as “proven and probable reserve”, which would be roughly equivalent to measured and indicated resource today. The “possible reserve” category, equivalent to inferred resource today, hosts a further 8.8 million ounces. Note that these are historic estimates only and further drilling and other confirmation is required before they can be considered resources. The grades of the various deposits range from 280 to 750 grams per tonne.

Management believes that the existing mineralized zones have the potential for 40 to 50 million ounces. A drilling program is about to get underway, intended to validate the historic resource estimates and also to extend those zones.

Logistics are quite favorable, with a 23 km road to the property from Alice Arm which is provincially maintained as it also provides access to a hydroelectric facility and another mineral exploration project five kilometers further north. Kitsault, just across Alice Arm, has direct road access to the provincial highway system. Underground workings at the Torbrit mine were opened up last summer and will provide access for underground drilling.

While the geological team are working toward establishing a sizable silver resource in the known areas, they will also continue to evaluate the much larger gold-silver potential suggested by the Eskay model.

A 2002 report from the BC Geological Survey, commenting on the Dolly Varden deposits, states: “It also suggests that the deposits may be silver-rich analogues to the precious metal-rich Eskay Creek deposit.” That report goes on to document the abundant geological evidence in support of that premise.

A technical report on the Dolly Varden deposit noted: “The Eskay Creek deposits are examples of shallow subaqueous hot spring deposits, an important new class of submarine mineral deposits that has only recently been recognized in modern geological environments. They are relatively under explored and poorly recognized within the geological record.”

The analogy to Eskay is extremely important. Cumulative production at Eskay was 3.3 million ounces of gold and 161 million ounces of silver from 2.2 million tonnes of ore. The average grade over the life of the mine was an exceptional 45.7 g/t gold and 2,231 g/t silver (1.3 oz/ton gold and 65 oz/ton silver). During its life, Eskay ranked as the fifth largest silver mine in the world.

The Eskay mine, which was operated by Barrick until its closure in 2008, is located 100 kilometers north of Dolly Varden. The mineralization is found in the same geological setting: rift-related volcanic and sedimentary rocks of the Hazelton Group.

Support for the Eskay model is seen in an extensive sheet of chemical sediment (“exhalative”) mineralization that extends from the Dolly Varden mine, passing through the North Star underground workings and ending in the Torbrit mine. The almost continuous sheet, mostly ranging in thickness from 3 to 38 meters, is exposed for a strike length of 1.5 km on surface. Two other zones, Red Point and Wolf, have geological similarities to the Eskay model and may represent additional target horizons.

The Eskay model is well established at Dolly Varden. The task now is to identify areas which are most likely to host high grade mineralization. The geological team will be conducting further review of the existing geological and geophysical data as well as further mapping, geochemistry, alteration and structural studies to guide a summer drill program to test those targets.

Hecla Mining Company, a major silver producer, holds 19.9% of the Dolly Varden shares. Hecla, the largest primary silver producer in the US, derives the bulk of its production from the Greens Creek mine, located nearby in Alaska. Greens Creek is in a similar geological setting and that company is providing technical assistance to Dolly Varden.

In summary: The nearly 15 million ounces suggested by the historic estimates, and the potential for up to 50 million ounces in the known zones make Dolly Varden an attractive investment even if that is all there was. The potential for further discoveries on the scale of Eskay, while speculative, make this a compelling story. A company like this, with cash, a known deposit, good infrastructure and a capable management team, will be among the early movers as this market recovers. Positive results from the on-going exploration program would have an immediate impact on the valuation.

Price May 24, 2013: C$0.11

Shares Outstanding: 118 million

Shares Fully Diluted: 131 million

Market Cap: C$12.9 million

Contact: Investor Relations

720-273-6224

www.dollyvardensilver.com

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