Silver Dollar finalizes LOI for La Joya project, Mexico

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

 

2020.08.13

Silver Dollar Resources (CSE:SLV) has finalized a letter of intent (LOI) with First Majestic Silver Corp. (TSX:FR) for the La Joya silver-copper-gold property in Mexico.

Under the LOI, Silver Dollar will acquire up to a 100% interest in First Majestic’s La Joya Silver Project, located in the State of Durango in the Mexican Silver Belt. 

To acquire an 80% interest in La Joya, Silver Dollar will pay First Majestic $1.3 million in cash over four years, issue 19.9% of its shares, incur $1 million in exploration expenditures within five years, and grant FR a 2% NSR royalty. If Silver Dollar spends the million dollars within three years, First Majestic will waive nearly half, or $600,000, of the cash option payments. 

SLV can earn the remaining 20% by issuing First Majestic additional shares equal to Silver Dollar’s then-outstanding common shares, within five years. 

“The signing of the definitive agreement to acquire the La Joya project is a very important milestone for us,” said President Mike Romanik. “We engaged some expert help to assist in our due diligence review of the historical data on the project and the unanimous feedback is that La Joya has incredible exploration and development potential, particularly in light of the significant move in metals prices since we signed the letter of intent.”

The project hosts the La Joya mineralized trend as well as the Santo Nino and Coloradito deposits. The Ag-Cu-Au property consists of 15 mineral concessions totaling 4,646 hectares. 

A 2013 resource estimate outlined 159.7 million inferred silver-equivalent ounces at a 30 grams per tonne cut-off. Doubling the cut-off grade to 60 g/t yields a more conservative 92.9 million AgEQ ozs. 

The estimate took into consideration 89 historical holes totaling just over 30,000m. Mining would be by open-pit methods. 

The property is about 75 km southeast of the state capital city of Durango in a prolific mineralized region with past-producing and operating mines including Grupo Mexico’s San Martin mine, Industrias Penoles’ Sabinas, Pan American Silver’s La Colorada, and First Majestic Silver’s La Parrilla and Del Toro Silver mines. Access and infrastructure are considered excellent with highway, rail and power lines nearby.

The company is in the process of finalizing its initial exploration program for La Joya and will provide an update in due course.
In late June, Silver Dollar appointed Perry Durning and Frank (Bud) Hillemeyer as technical advisors, based on their exploration success in Mexico. CEO Mike Romanik brought the veteran geologists on board to help explore the La Joya (pronounced “la hoya”) property.  

Durning and Hillemeyer worked together for over a decade before forming La Cuesta International in 1993. Both are recognized for their incredible string of discoveries including:

  • San Sebastian silver-gold mine, Mexico - initially placed into production by Hecla Mining in 2001, this low-cost producer currently has mineral reserves and resources of over 45 million silver-equivalent ounces (AgEQ oz).
  • San Agustin gold mine, Mexico - now in production (Argonaut Gold) with mineral reserves and resources totalling 1.06Moz of gold and 41.6Moz of silver.
  • Pitarrilla silver deposit, Mexico - owned by SSR Mining, this development-stage project hosts a measured, indicated and inferred resources of 552Moz of silver.
  • Camino Rojo gold project, Mexico - owned by Orla Mining, Camino Rojo hosts proven and probable reserves of 1.0Moz oz of gold and 20Moz of silver; and  measured and indicated resources of 9.5Moz of gold and 100Moz of silver.
  • Cerro Los Gatos mine, Mexico - placed into production in 2019 by Sunshine Silver Mining & Refining and DOWA Minerals & Metals, the underground mine generates 9.2 million AgEQ oz annually. The Cerro Los Gatos deposit currently hosts measured, indicated and inferred resources totalling 236 million AgEQ oz.

I believe both gentlemen will prove to be a great resource for Romanik and his team. 

According to the US Geological Survey, Mexico is by far the largest silver producer, outputting 6,300 tonnes in 2019, followed by Peru and China, at a respective 3,600t and 3,800t. Global silver production in 2019 totaled 27,000 tonnes, or 868 million ounces.

Over two-thirds of the world’s silver comes from polymetallic ore deposits, often lead/zinc or copper. 

Only 28% of global silver production is sourced from primary silver mines. According to the latest World Silver Survey, topping the list was Fresnillo’s Saucito mine in Mexico, which in 2018 produced 19.9 million ounces. Second spot went to Polymetal’s Dukat mine in Russia (16.5Moz), followed by Buenaventura Mines’ Uchucchacua mine in Peru, producing 15.4Moz. 

Conclusion 

The letter of intent (LOI), signed by Silver Dollar Resources (CSE:SLV) and First Majestic Silver Corp. (TSX:FR), over the latter’s La Joya Ag-Cu-Au property in Mexico, comes at the perfect time for the silver market. 

Despite a temporary pullback in gold and silver prices (a much-needed correction in our view to stabilize the market and set it up for the next leg up in the fall), silver continues to perform well, on the back of unprecedented monetary and fiscal stimulus programs being rolled out worldwide in response to the covid-19 pandemic. 

In July silver gained an astonishing 35%, its best monthly performance since 1979, as investors sought shelter from pandemic turmoil and low or negative interest rates, while industrial demand for the metal recovered in some parts of the world. 

The story behind its success - we were among the first to predict the potential for a silver breakout approaching that of 2011 - is one of two demands, reflecting silver’s role as both a monetary and an industrial metal. There is also a supply narrative to silver’s rise, with respect to covid-related output reductions at silver mines in Peru and Mexico, from which 40% of the world’s silver is produced. 

We like the La Joya silver project. It’s in a well-known mining region with past-producing and operating mines nearby, including those owned by major silver companies like First Majestic, Pan American Silver and Grupo Mexico. Road, rail and power lines to the property tick the all-important infrastructure box. 

Mexico is an established mining jurisdiction with a good mining code, regulations and permitting procedures in place. There is no evidence of resource nationalism, unlike other Latin American countries like Peru, Ecuador and Venezuela. 

The fact that La Joya already has a resource, is a major plus. I always own one or two greenfield, early-stage explorers, but my favorite-stage junior is in the post-discovery resource definition stage (also known as brownfield companies). These companies have already found something, the share price has settled back after the initial discovery, and the company is going in to see what they have and hopefully produce an NI 43-101-compliant resource estimate to build upon. The risk has been greatly reduced, the waiting time for a discovery non-existent, and the reward very nice considering the much lower amount of risk.

We aren’t the only ones thinking the same.

Silver Dollar Resources (CSE:SLV) has a boatload of talent and experience at the management and board levels, and a tightly held share structure that includes ownership by renowned resource investor, and self-proclaimed silver bug Eric Sprott. 

Having recently IPO’d on the Canadian Stock Exchange @ $0.15 a share, SLV has already started field work at one of two prospects in the famous Red Lake District of northwestern Ontario, where a number of gold juniors including 2019 belle of the ball Great Bear Resources (TSX-V:GBR), are proving up gold ounces in a new “Red Lake 2.0” area play. 

The market appears to be loving the stock. While many precious metal juniors are faltering this week, afflicted by the gold and silver price corrections, Silver Dollar is doing just fine. At time of writing SLV had gained 21.5% on the LOI news, to $1.30/sh. Shareholders who bought it @ $0.30 at the beginning of June, have more than quadrupled their average costs. 

I can’t wait to see what Silver Dollar is planning at La Joya, to unlock the potential of what is looking like an exciting Mexican silver play. 

Silver Dollar Resources Inc.
CSE:SLV
Cdn$0.65, 2020.08.12
Shares Outstanding 20,714,909m
Market cap Cdn$29m
SLV website

Richard (Rick) Mills
aheadoftheherd.com
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