Dolly Varden Silver: two paths to shareholder gains

2021.09.30

Dolly Varden Silver’s (TSXV:DV, OTC:DOLLF) two past-producing silver deposits, Dolly Varden and Torbrit, became part of British Columbia’s mining lore, featuring assays as high as 2,200 ounces (over 72 kg) silver per ton, with historical production of 20 million ounces Ag, between 1919 and 1959. In fact, the Dolly Varden/ North Star Mine was among the richest silver mines in the British Empire, producing 1.3Moz at an average grade of 1,109 g/t Ag between 1919 and 1921.

Dolly Varden’s goal is to try and extend the Torbrit deposit through step-out drilling, and to get into the high-grade, 500g to 1kg material. There are early indications of Torbrit “look-alikes” along a 4.5-km trend. Through drilling, Dolly Varden’s goal is to prove up another Torbrit and increase the size of the current 44-million-ounce resource (which has an eye-popping average grade of 300 g/t) to 100Moz.

It is encouraging that the rocks hosting the mineralization are the same age as some of the other large deposits found in the Golden Triangle including Eskay Creek.

The company finds itself in the rare position of being a pure-play silver explorer, in a space where most silver production comes from lead-zinc deposits or is a by-product of gold mining. The fact that Dolly Varden is working in British Columbia, a comparatively safe mining jurisdiction, is also important given that its pure-play silver peers like Peru and Chile are experiencing a period of resource nationalism.

Golden Triangle

While most of the world’s silver is mined in Latin America and China, British Columbia should not be overlooked as a past and future silver producer. The province is endowed with one of the richest mineralized regions on the planet, in the Golden Triangle of northwestern BC.

With over a century of mining history, the triangle has been the site of three gold rushes and some of Canada’s greatest mines, including Premier, Snip and Eskay Creek. Other significant and well-known deposits include Brucejack, Galore Creek, Copper Canyon, Schaft Creek, KSM, Granduc and Red Chris.

The Golden Triangle takes its name from a 500-km belt of mineralization, that stretches from the British Columbia-Yukon border in the north, to the town of Kitsault, just southeast of the port of Stewart, BC. The Kitsault area is historically associated with molybdenum and silver production.

Dormant for a number of years due to low metals prices and its relative isolation compared to other mining districts, lately there has been a resurgence of interest in the Golden Triangle, with the excitement driven by:

• New road, power and port infrastructure built by the BC government.
• Receding glaciers revealing fresh mineralization
• Improved relationships between mining/ exploration companies, the BC government and the region’s two First Nations groups.
• New technologies allowing geologists to gain a better understanding of the Golden Triangle’s complex geology.

Major interest

Some of the world’s largest mining companies, the “majors”, have a presence in the Golden Triangle including Canada’s Teck Resources, US miners Newmont and Hecla, and Australia’s Newcrest Mining.

At the western edge of the triangle, Teck and Newmont jointly own the Galore Creek deposit, while to the northeast, Teck and Copper Fox Metals have partnered up to advance Schaft Creek, touted as one of the largest undeveloped porphyry copper-gold-molybdenum-silver deposits in North America.

To the southeast, Skeena Resources is aiming to re-open the past-producing Eskay Creek mine, which has open-pit reserves of 3.88Moz at 4.57 grams per tonne gold-equivalent in the proven and probable category. A prefeasibility study was completed this past July and a feasibility study is expected in the first quarter of 2022.

Pretium’s high-grade underground Brucejack mine opened in 2017. The gold operation, sandwiched between two glaciers, features a year-round all-weather road that connects the mine to Highway 37, and grid-scale power infrastructure. Since commercial operations began, Brucejack has produced 1.3Moz.

The Golden Triangle has recently witnessed a bunch of consolidations.

In 2019, Newcrest acquired 70% of the Red Chris open-pit operation in a joint venture with Imperial Metals. The Australian miner is investing CAD$135 million to build an exploration decline at the copper-gold mine. 2020 production was 88.3 million pounds copper and 73,787 ounces gold.

In May 2021 Newmont Mining bought GT Gold for CAD$393 million, giving the world’s biggest gold miner control of the Tatogga copper-gold project, located 14 km west of Red Chris.

Also this year, Ascot Resources in April announced a CAD$20.6 million private placement financing by Canadian mid-tier gold producer Yamana Gold. The funds are expected to accelerate Ascot’s exploration of the past-producing Premier gold mine. A 2020 feasibility study outlined an eight-year mine producing an average annual 132,375 oz gold and 370,500 oz of silver.

Major interest in the Golden Triangle is rubbing off on several junior companies working there.

For example Skeena Resources has seen a significant re-rating commensurate with its success so far in developing the historical Eskay Creek mine, moving from around $30 million market value two years ago to its current $770 million.

Eskay Creek Mining has gone from a $2 million market cap to $350 million, its Eskay-Corey property having been shown to host five main VMS targets with the potential for nickel-copper massive sulfides and numerous occurrences of vein-style mineralization.

The entire gold sector received a boost on Monday when Canadian mid-tier Agnico Eagle purchased Kirkland Lake Gold for CAD$13.4 billion. Agnico’s combination with Kirkland amounts to a mineral reserve base of 48 million ounces, and features the acquisition of KL’s Macassa and Detour mines in northern Ontario and its Fosterville mine in Australia.

Successful neighbors

On the map above, note that Dolly Varden’s project is in the bottom corner of the Golden Triangle.

Dolly’s stock price hit a five-year high of $1.06/sh in August 2020, due partly to last year’s run in the silver price to nearly $30/oz. The company also benefited from the success of its neighbors, including Skeena and Ascot aiming to put past-producing mines back into production.

The gold majors and mid-tiers have been mandated by their boards to increase their reserves base in safe jurisdictions. As one of the premier mining camps in the world — draw a circle around Seabridge’s KSM project and Pretium’s Brucejack, and you’ll find 20 million ounces of gold, 8Moz of silver and 50 billion pounds of copper within a 20-km area — it is no surprise they have been drawn to the Golden Triangle.

While the action has primarily been in the north-central part of the triangle, the southern reaches where Dolly Varden is working, are also beginning to receive market attention.

Hecla Mining’s Kinskuch is an early-stage project with the potential for discovery of epithermal silver-gold, gold-rich porphyry and VMS deposits.

Fury Gold Mines’ Homestake Ridge covers about 7,500 hectares within the Iskut-Stewart-Kitsault mineral belt. To date more than 275 holes totaling over 90,000 meters have been drilled, with multiple exploration targets yet to be tested. The project shows a lot of promise, with about 1 million ounces of gold and 2Moz of silver in an NI 43-101-compliant resource. A PEA envisions a 13-year mine with peak annual production of just over 88,000 gold-equivalent ounces.

Finally, Dolly Varden’s neighbor to the west, Goliath Resources, reached a one-year high of $1.62/sh at the end of July, with momentum carried from a string of positive drill results at the Surebet zone of its Golddigger project. Goliath’s high-grade polymetallic discovery (35 meters @ 6 g/t Au) was confirmed by news on Sept. 14 that all 23 drill holes completed to date, a total of 4,391m, intersected significant widths of quartz-sulfide veining along the entire 1,000m strike length. Goliath has grown from a market cap of just a few million a year ago to a $42M market value and a current share price of 85 cents.

Dolly Varden project

The Dolly Varden project comprises 88 square km in the Stewart Complex of northwestern BC, which hosts base and precious metals deposits. The property has four historically active mines — Dolly Varden, Torbrit, North Star and Wolf.

An updated NI 43-101 resource estimate completed by Dolly Varden in 2019 revealed 32.9Moz silver in indicated resources and 11.477Moz inferred, for a total of 44Moz Ag, adjacent to the historical deposits.

Drilling and underground work that went into the resource estimation confirmed that the mineralization occurs as two styles: bedding-parallel VMS, similar to that mined at Eskay Creek (Once the highest-grade gold mine in the world, Eskay Creek produced 3.3Moz gold and 160Moz silver at average grades of 45/g/t Au and 2,224 g/t Ag from 1994 to 2008), as well as cross-cutting epithermal mineralization similar to that being developed at Pretium’s Valley of the Kings deposit (Brucejack mine).

The southern part of the Golden Triangle is the least explored and only 3% of DV’s property has been explored in detail, leaving plenty of potential exploration/ discovery upside for shareholders.

According to DV, both the Eskay Creek and Valley of the Kings deposits are located on the same structural trend to the north of Dolly Varden’s ground.

Could Dolly Varden represent the southern end of a silver district that extends northward? It seems likely and further exploration may prove it.

A total of 11,397 meters in 40 drill holes were completed in 2020, 19 of which were in the Torbrit area. The rest were reconnaissance and exploration drill holes, testing multiple areas on the property.

Highlights included 310 g/t over 6 meters, a stand-out 304 g/t over 45.82m, and 306 g/t over 5.10m. Higher-grade core within those intercepts featured 648 g/t over 6.06m, 1,595 g/t over 1.06m, and 1,290 g/t over 0.6m.

“We are seeing consistent intervals of high-grade silver mineralization at the Torbrit silver deposit that has the potential to support economically attractive underground bulk-mining technics, while at the same time each successive drill programs continues to demonstrate that the deposit is open for expansion,” states CEO Shawn Khunkhun, in the Feb. 16 news release.

He adds that the company “cannot rule out a gold discovery consistent with the plus million-ounce resource at the adjacent Homestake property in addition to the potential for another Torbrit-like silver discovery,” given encouraging geological and geochemical results for gold and copper mineralization from the four-kilometer-long trend to the northwest of the silver deposits.

This year’s 10,000m drill program is the first phase of an aggressive two-year campaign at the Dolly Varden project to aggressively expand and upgrade the Torbrit silver deposit and multiple silver-rich satellite zones. The ultimate goal is for Dolly Varden to become the next high-grade pure silver mine.

About 9,000 meters of the 10,000m program have been drilled, with assay results pending.

Eskay Creek sub-basin

The Dolly Varden project can be conceived, in a geological sense, as a sub-basin of the Eskay Rift mineralizing event that created the Eskay Creek deposit to the north.

During this Jurassic-age period, “you had an expansion opening up the structures for mineralized fluids to come up and in the south we’re seeing all the same juxtaposition of porphyries, silver mineralization, gold mineralization in veins, as well as volcanogenic stratiform and porphyries like we have on our Big Bulk [copper-gold project],” says Rob Van Egmond, Dolly Varden’s chief geologist, in an exclusive talk with AOTH.  

Dolly’s first goal this year is to infill and expand Torbrit. The second objective is to explore the Kitsault Valley, where the company has identified a 4.5-km band of alteration within the Hazelton Group package of volcanic rocks.

This alteration, the western side of the Dolly Varden property, shows evidence of gold, whereas the eastern side of the property (Torbrit) is silver-mineralized.

“We’re seeing styles of mineralization, multiple phases of brecciation, up north by Stewart that are very similar to Premier” Van Egmond says of the gold-focused exploration. “There’s some good fluid flow and multiple pulses there, that would bode well for gold mineralization, similar to the style of mineralization that Goliath is finding 10 km west.”

As for the silver-focused exploration at Torbrit, Van Egmond explains that, although Torbrit and Eskay Creek are of a similar age and are within the same stratigraphy (rock layers), the deposits were formed differently.

“In our case most of the mineralization is stratiform with volcanic layers whereas Eskay Creek was in deep water. You had more sediments being deposited down over time and it was not capped quickly, whereas we had some layers put down but then there were some volcanic eruptions that quickly capped it. The heat cells that brought up these mineralized fluids kept working and that’s when you start seeing epithermal veins crosscutting our stratiform mineralization.”

Dolly Varden has been finding new basins with (visual, not drilled) 30-40m intercepts similar to the main Torbrit-style, and identified connecting mineralization between Torbrit and North Star, a satellite deposit to the southwest. All of this warrants further exploration.

“The big takeaway is this area from Homestake Ridge to Dolly Varden is a mini model of the whole KSM-Eskay region, it’s like a little sub-basin, same age same geological and tectonic activity” says Van Egmond.

Build it and they will come

Twenty-two years ago it was economical for Barrick Gold to fly gold bars out of Eskay Creek and that was when the gold price was $200/oz. These days we have new infrastructure thanks to the provincial government — roads and power — that has opened up multiple exploration corridors in the Golden Triangle that weren’t accessible two decades prior.

Combine better accessibility with higher metal prices, add receding glaciers unveiling prospective new ground, and you have a far better environment for precious and base metals exploration in northwestern BC. Is it any wonder that the world’s largest gold companies are back in the triangle, poking around for fresh mineralized ground to add to their reserves?

Predator or prey?

Dolly Varden’s worst case scenario is that DV’s ore gets mined by somebody else, which is why billionaire resource investor Eric Sprott owns close to 20% of the company, Hecla Mining has over 10% of the shares, and institutional investors own 50%. At the end of the day, the shares are in the hands of people who understand the Dolly Varden story and will likely stick with the company.

“It’s either going to end with us being a development project in the pipeline for a producer, or we take the bull by the horns on the back of drilling success and we build it ourselves, making us a much bigger entity, a leader in the area, but either way I see it as a win for our shareholders,” Dolly’s CEO Shawn Khunkhun told me over the phone this week.

I believe him.

When Khunkhun joined Dolly Varden 18 months ago, the company was trading at US$0.37 per ounce of silver in the ground. When silver is in a bull market, silver stocks typically trade at US$3.30/oz of silver in the ground.

It just so happens we have a recent example to test this theory. Last summer silver was in a bull market, and shareholders bid Dolly Varden up to a $150 million market value.

Since then, the silver price has slipped back and so has DV’s share price. Dolly Varden can’t control the price of silver but it can control how many ounces are in the ground. Adding ounces bumps up the enterprise value which will move the share price higher — potentially by multiples depending on how many new ounces are discovered and moved into resources.

The other side of the business is looking at ways to grow Dolly Varden’s resource base not only through exploration, but acquisition.

“Sometimes what happens around your property has as much bearing on your future as what’s on it, so as we see discoveries made at our neighbors to the east, west or north, this all impacts the value of our property,” he told me.

Of course, gobbling up or taking ownership positions in neighboring properties depends on a healthy treasury. Despite coming to the end of 2021 exploration, and drilling 10,000 meters, the company is cashed up with $20 million in the bank, enough to see them through the rest of this year and next year’s exploration. There should be no need for Dolly Varden to dilute the share structure until 2023 — a tremendous cash position for a junior its size to be in.

They got there by being smart about raising money. The company raised funds in a non-dilutive fashion, last year conducting private placements at 30 cents, 45c, 75c and then at $1.00 raised $8m, printing only 8 million shares. Considering DV started the year at $0.20, this was one hell of a feat.

Conclusion

I’m impressed with Dolly Varden’s two-pronged approach to increasing shareholder value, which at the end of the day, is what the mineral exploration game is all about.

The company understands capital markets and how to raise money. On the discovery side, its results year after year have shown new opportunities in a 100-year-old silver camp. Now we have gold and copper kickers, including gold mineralization on the western side of the property, analogued to the Premier mine to the north and Goliath’s Golddigger project to the west.

Management has been trying to strengthen the company and has done so through a tight share structure, with 50% ownership of institutional investors as well as keystone owners Eric Sprott and Hecla. It has $20 million in the bank, meaning shareholders won’t have to worry about their shares being diluted until at least 2023. The company is equally well placed, either as a producer/ developer looking to be acquired; or as a predator looking for opportunities in the region.

Dolly already has 44Moz of silver in a modern resource, a rare pure-silver play in British Columbia, a safer jurisdiction than other pure-silver regions in the world, such as Peru and Chile, where left-leaning governments with an itchy trigger-finger on the resource nationalism button are making mining investors nervous.

In contrast, Dolly Varden shareholders are eagerly awaiting the results from 9,000 meters of drilling, from a 100-year-old silver camp within the Golden Triangle, one of the highest concentrations of metal on the planet.

I’m told we expect to receive the first assays in October and a steady flow of news into the new year.

Readers stay tuned.

Dolly Varden Silver Corp.
TSXV:DV, OTC:DOLLF
Cdn$0.44, 2021.09.29
Shares Outstanding 130.6m
Market cap Cdn$58.1m
DV website 

Richard (Rick) Mills
aheadoftheherd.com
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