Company Maker

Richard (Rick) Mills

Ahead of the Herd

 

As a general rule, the most successful man in life is the man who has the best information

 

In December 2006, Kootenay Silver TSX.V - KTN announced an agreement to acquire 100% interest in the former producing Promontorio Mine and the surrounding properties and mineral rights known as the Promontorio Concession. The claims cover approximately 79,000 hectares and are located in the historic, prolific silver and gold producing Sierra Madre Region of northwest Mexico.

 

Historical data from Promontorio shows individual holes with 1 kilogram (kg) of silver over 5 meters (m), 10m, 15m and an average silver grade of 367 grams per tonne (g/t). Historic reports also cite widths of 20 meters on average.

 

The project had seen some sporadic exploration and limited production (once in the 1920s and again in the 1980s) over the years but Kootenay’s exploration efforts represent the first thorough exploration program using highly advanced modern techniques.

 

Kootenay drilled over 50,000 meters and produced a 43-101 resource report which outlined 21 million ounces of silver equivalent - over 10 million ounces of silver along with substantial amounts of lead and zinc.

 

The independent mineral resource estimate from AGP Mining Consultants (AGP), for just the Pit Discovery Zone, comprises Indicated Mineral Resources of 5.22 million tonnes averaging 52.7 g/t silver, 0.86% lead and 0.96% zinc, containing 8.9 million oz Silver, 99.3 million pounds of lead and 110.8 million pounds of zinc.

 

AGP also estimated that Promontorio contains 0.65 million tonnes averaging 55.7 g/t silver, 0.94% lead and 1.00% zinc in the Inferred category, containing 1.17 million oz Silver,13.4 million pounds of lead and 14.3 million pounds of zinc.

 

That 43-101 report was published over 18 months ago, since that time KTN has drilled off another 35,000 m - an initial 10,000 m in RC and then 25,000 m of core.

 

Promontorio - drill program KTN is currently revising their 43-101 resource report to include all 85,000 meters of drilling.

 

We have said all along the proof will be in the drill bit, and thus far it has yet to let us down. Based on supporting scientific data and the advancements we are seeing now, we have every reason to believe we have a viable shot to double or triple our current resource, or more.” James McDonald, Kootenay Silver CEO

 

There is no doubt the Company has good reason for its optimism, 35,000 m of drilling has been done, this was after the initial resource estimate. There are some pretty outstanding results (all posted on the website for investors to look at) from a lot of that drilling yet to be incorporated into a new resource estimate.

 

Highlights:

  • 18 Meters of 254 gpt Silver Eqv Within 89 Meters of 84 gpt Silver Eqv (*Includes 120 gpt Silver and 3.1% Pb+Zn and 41 gpt Silver and 1.01%Pb+Zn)
  • 873 gpt AgEqv Over 18 M in NE Zone (471 gpt Ag, 9.42% Pb+Zn) and 150 gpt AgEqv Over 17 M in SW Zone (118 gpt Ag, 0.76% Pb+Zn)
  • 706 gpt Silver Eqv Over 16 Meters (370 Ag and 7.79 % Pb-Zn)
  • 120 M of 164 gpt Silver Eqv (68 gpt Ag & 2.24% Pb+Zn) Incl High-Grade Intervals; 31 M of 292 gpt Silver Eqv (118 gpt Ag & 4.06 Pb+Zn) and 13 M of 362 gpt Silver Eqv
  • 83 meters of 166 gpt Silver Equivalent (58.2 Ag gpt, 2.52% Pb +Zn) Including 329 gpt Silver Equivalent Over 6 Meters (111 gpt Ag, 5.11% Pb +Zn)
  • Step Out Drilling on Promontorio Intercepts 92 m of 147 gpt Silver Eqv (56 gpt Ag,2.11% Pb+Zn) Extending the SW Zone 100 M Down Dip. Includes 5 M of 378 gpt Silver Eqv (174 gpt Ag,4.72% Pb+Zn)
  • 205 meters of 117 gpt Silver Equivalent in Step-Out Drilling in Southwest Zone that includes 169 gpt Silver Equivalent over 50 meters.

Doubling or tripling its current silver resource at Promontorio could drive the total contained metal values on the project to over $1 billion. In short, if objectives are met, Promontorio, as it sits today, could well be a ‘Company Maker’.

 

The zones discovered to date are all open ended. After the new resource is out KTN will start another large program and start stepping off where the zones are still open ended and also start drill testing other targets in the immediate corridor zone.

 

Management believes the potential is for the resource to be in the 50 million ounce silver range plus an equivalent value in the lead/zinc. If so, shareholders have got a resource that could support a very significant silver producer for a 10 or 15 year time period.

 

Metallurgy

 

Preliminary metallurgy has been conducted on a composited 115 kg. sample taken from within the Pit Resource. The sample responded well to a standard lead/zinc sequential flotation flow sheet producing concentrates that would be highly saleable in the event a deposit is developed.

 

Locked cycle tests were conducted, 85 percent of the feed lead was recovered into a final lead concentrate containing 62 percent lead and 4250 g/tonne silver. On average, 82 percent of the silver reported to the lead concentrate and 7 percent reported to the zinc concentrate. Zinc was 91 percent recovered to the final zinc concentrate which graded 57 percent zinc.

 

Following lead and zinc recovery, 87 percent of the gold could be recovered into a pyrite concentrate. Sodium cyanide leach tests conducted on pyrite concentrates showed further work is required to develop a suitable process to extract gold from the pyrite concentrate.

 

Diatreme

 

Kootenay is dealing with a diatreme-hosted silver system (A diatreme is a breccia-filled volcanic pipe or concave body that was formed by a gaseous explosion or hydrostatic forces). What makes a diatreme system so exciting is the upside potential. Some of the world’s largest precious metal deposits are hosted in diatremes, and diatreme systems can keep producing new discoveries over a long period of time.

 

Two examples in Mexico are:

 

Goldcorp’s Penasquito Mine – In 2010, the Peñasquito mine achieved commercial production. Over a 22-year life, Peñasquito is expected to produce an annual average of 500,000 ounces of gold, 28 million ounces of silver, 450 million pounds of zinc and 200 million pounds of lead. Peñasquito will be Mexico's largest open pit mine, consisting of two open pits - Peñasco and Chile Colorado - containing gold, silver, lead and zinc. Exploration continues to expand the high-grade manto deposits beneath the Peñasquito pit.

 

Silver Standard’s Pitarrilla - The Pitarrilla Project is a grass roots discovery made by Silver Standard in 2002. The Pitarrilla Project is located on the eastern flank of the Sierra Madre mountain range in the central part of Durango State, Mexico. Pitarrilla is one of the biggest deposits of its type in the world - currently 640 million ounces of silver. Five zones of mineralization have been identified to date on the Pitarrilla property.

 

Another example would be the Cripple Creek deposits in Colorado, these are diatreme-hosted systems that have had a long production history, over a hundred years. They are still giving off discoveries – a new pipe was discovered that, while only 130 m in diameter, went to 800 m depth and contains over 8 million ounces of gold.

 

A significant diatreme event formed the giant Sullivan (lead-zinc-silver) orebody in British Columbia, Canada.

 

These systems are incredibly exciting and can hold a lot of silver and gold ounces.

 

The Best of Both Worlds

 

Without internally generated positive cash flow our juniors are money-eating machines constantly having to go to the market to raise capital through equity offerings.

 

However there are companies doing things a little different than the mainstream junior - they’re called “Project Generators.” Project generators, after finding and securing a property, do the initial mapping, sampling and maybe a small drill program. Upon making a discovery, basically finding something of interest, they turn it over to a joint venture partner who puts up the money and or its own shares to earn into the property while investigating the discovery.

 

A property ownership dilution business model is not as well liked as the much more common share dilution (through equity offerings known as private placements) model. Yes the project generator shareholder’s eventual ownership of a discovery is diluted, BUT, their ownership in the prospect generating company is not diluted because there is very little dilution of the project generators outstanding shares. This is because the exploration/development expenses are paid by the partner, not the generator.

 

Kootenay Silver’s strategy has been to build a company incorporating both the property ownership dilution business model and share dilution model. They have several projects joint ventured with other junior explorers who pay costs for exploration and issue KTN shares in their company.

 

Kootenay Silver is a generator of new discoveries in both Mexico and the Kootenay region of British Columbia, Canada. They’ve send out their prospectors, generated new discoveries and brought in joint venture partners to conduct work programs while retaining 100% ownership of their flag ship Mexican property - the advanced stage Promontorio silver project.

 

This type of business model – property dilution versus share dilution -  minimizes risk and allows other people’s money (OPM) to be spent in the ground on drilling while avoiding diluting KTN shareholders. These joint ventured properties offer new discovery potential with every drill program. 

 

Conclusion

 

Everything I’ve talked about so far is based on what Kootenay has discovered to date, and while it is considerable, and makes for an incredible backstop while still offering further resource growth, there is yet vast untapped potential on the rest of the Promontorio Concession outside of the Promontorio Mine area.

 

There’s 80,000 hectares of continuous land attached to the diatreme Kootenay is currently working on. Over the course of the last three years, they’ve been exploring some of these other areas (concentrating on three areas containing six different zones of mineralization) on a grassroots level, and there are now over half a dozen targets that are drill ready or very near drill ready. A number of these targets are breccia hosted, while others are disseminating, fracture-controlled, silver-gold systems and structurally focused high-grade systems.

 

There’s quite a number of things going on in the property outside of the resource project area KTN is currently working.

 

For all these reasons Kootenay Silver TSX.V – KTN should be on everyone’s radar screen.

 

Is Kootenay on yours?

 

If not, maybe it should be.

 

 Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

 

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Richards articles have been published on more than 400 websites including: 

 

Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

 

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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

 

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

 

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

 

Richard does not own any shares of Kootenay Silver TSX.V – KTN

 

Kootenay Silver TSX.V – KTN is a sponsor of Richards site aheadoftheherd.com

 

 

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