There's very little doubt the Cerro Las Minitas project (located on a 23,000-hectare land package just 70 kilometers away from Durango) is Southern Silver Exploration Corp.'s (SSV:TSX.V; SSVFF:OTCQB; SEG1:FSE) main exploration focus as it is continuing its drill program to increase the currently known resources.
Electrum has now acquired 60% interest in Cerro Las Minitas after having funded this year's drill program. That drill program was very successful, as it resulted in the company being able to increase the mineralized zones after discovering the so-called "Blind Shoulder" and a new target along strike southeast of the known resource. Subsequently, Southern Silver and Electrum have now formed a 40/60 joint venture for further advancement of the CLM project.
The current resource estimate is just the start
The maiden resource estimate at Cerro Las Minitas contained 3.7 million tonnes in the Indicated resource estimate at an average silver-equivalent grade of 305 g/t, with an additional 6.6 million tonnes in the Inferred resource category at an average grade of 363 g/t silver equivalent.
What's also really interesting is the fact that due to the low silver price, it might make more sense to consider this to be a zinc project rather than a silver project. Have a look at how the relative weight of the minerals is in the Indicated and Inferred resource estimate (using a recovery rate of 82% silver, 86% lead, 80% copper and 64% net for the zinc).
This is visualized in the next two pie charts:
Cerro Las Minitas should be seen as a polymetallic deposit with base metals representing the largest part of the in situ recoverable value per tonne of rock. And that's a good thing, as Cerro Las Minitas could still perform well when precious metals are going through a rough period if base metals shine at the same time.
The preliminary metallurgical test results are very encouraging
Southern Silver announced some preliminary metallurgical test results that confirmed the company will produce a zinc concentrate and a separate lead concentrate. In a first step, a lead-zinc concentrate would be created, via which the company could recover 82% of the silver and 86% of the lead. The testing resulted in a rougher lead concentrate, with a lead grade of 61.5%, later upgraded to a cleaner concentrate with a lead grade of 71.1%, meeting the smelters' minimum requirements. Keep in mind 12% of the zinc also reported to the lead concentrate, and the payability ratio of that zinc will depend on the negotiations with the smelters.
The company also disclosed a subsequent zinc flotation circuit recovered 79% of the zinc in a rough concentrate with a zinc grade of 39.5%, which was later upgraded to a clean concentrate with an average grade of 49.7% and a recovery rate of 73-74. These test results are obviously preliminary in nature, and we expect Southern Silver to focus on reducing the zinc grade in the lead concentrate (and to try to increase the total percentage of zinc to the rough zinc concentrate. The zinc in the lead concentrate, by itself, won’t be "penalized" per se, but the willingness of the smelters to pay for it might be low), and to reduce the arsenic values in both concentrates.
The 2017 exploration program is in full swing
Thanks to the strong backing of Electrum, assay results have been rolling in throughout the year, as Southern Silver is trying to define the edges of the Cerro Las Minitas deposit. Of specific interest were the company's two most recent exploration updates, as these have completely changed the perspective of the asset.
Earlier this summer, Southern Silver released the assay results from hole 98, where it intersected a thick layer of mineralization with a true width of almost 33 meters, containing almost 3.5 ounces of silver as well as 0.9% copper per tonne at a down-hole depth of almost 1,100 meters.
The location of hole 98 is also very interesting as this actually was a step-out hole from the currently known skarn mineralization at Cerro Las Minitas (CLM). Whereas the current resource could definitely be best described as "polymetallic," hole 98 seems to indicate there's another mineralized zone at CLM with elevated copper values.
But if there's anything you need to remember, this hole validated the Blind Shoulder target, which is a new target along the west-northwest-northern part of the currently known mineralization. This zone has now been modelled at approximately 800 meters down dip and in excess of 600 meters along strike.
This excellent update was followed up on with the results of hole 101, which further increased the size of the Blind Shoulder target. Whereas the company previously thought this zone was closed off toward the southeast, hole 101 intersected several mineralized layers with impressive average grades (for instance 12.5 meters true thickness containing 154 g/t silver, 2 g/t gold and 7.1% ZnPb). This assay result opens up an entirely new target area along strike of the current resource estimate, but much closer to surface (and with higher gold grades) than for instance the Blind Shoulder target.
Southern Silver's summer drill program will be completed any day now, and it will be interesting to see the assay results of the next batch of drill holes.
Biznagas and Los Lenchos: New discoveries, but another system
Southern Silver is also exploring on the newly acquired Biznagas and Los Lenchos claims, which are located right next to Cerro Las Minitas. Even though these claims are contiguous to CLM, the mineralization is different and Southern Silver planned to search for epithermal gold-silver veins (rather than the skarn and CRD mineralization at CLM).
This also means that should Biznagas and/or Los Lencho host economic gold-silver deposits, Southern Silver will have to process the rock using a different process than the CLM ore—which means it could make sense to explore "strategic alternatives," as the rock will be pretty similar to, for instance, the mineralization encountered at the Avino silver-gold mine, operated by Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM:NYSE.MKT; GV6:FSE).
Of course, it's still very early days at Biznagas and Los Lenchos, but it's interesting to see Southern Silver was able to pick up large parts of what seems to be an entire precious metals district, as Hecla Mining Co.'s (HL:NYSE) San Sebastian project, Coeur Mining Inc.'s (CDE:NYSE) La Preciosa silver project and Argonaut Gold Inc.'s (AR:TSX) El Castillo and San Agustin projects are all located within walking distance from Cerro Las Minitas, Los Lenchos and Biznagas. Plenty of options, but let's first see what the drill bit will pull out of the ground on these two claims.
The company's share structure, cash position and management team
Southern Silver is still trying to close a private placement priced at CA$0.40 per unit (with each unit consisting of one common share and a full warrant, allowing a warrant holder to acquire an additional share of Southern Silver at CA$0.55 for a period of three years).
A first tranche (CA$2.55 million) already closed in June, and resulted in the addition of 6.37 million new shares to the share count (bringing the current pro forma share count to 93.6 million shares). That's the current situation, but Southern Silver hopes to close a second tranche of the financing in September.
The current $2 million exploration program at Cerro Las Minitas has resulted in a massive amount of new data and information, which will now have to be carefully digested by the company's technical team. Two new discoveries have been made this year, so there will be a lot of data to be interpreted to make sure Southern Silver hits the ground running in the next phases of the Cerro Las Minitas exploration efforts.
After releasing the previous resource estimate, Southern Silver guided for an exploration target of 20 million tonnes. But after making the two new discoveries, the exploration target might already be outdated, and could easily be revised upward.
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Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.
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1) Thibaut Lepouttre: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: a long position in Southern Silver Exploration Corp. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has no financial relationship with Southern Silver Exploration, but expects to enter into a relationship this quarter. I determined which companies would be included in this article based on my research and understanding of the sector.
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Charts provided by the author.