Silver North: the next pure silver play – Richard Mills

2024.05.29

The white metal is red-hot, moving from $21.29/oz on Jan. 2, to the current $31.98, as of Tuesday, May 21, for a more than $10 gain!

On Monday silver was the highest since late 2012, trading just above $32 an ounce. Less than two years ago, in August 2022, silver was worth nearly half its current price, @ $17.33, according to a Kitco chart.

Gold futures meanwhile set a new record of $2,450/oz on Monday.

At AOTH, we know that silver prices track gold prices, and that there is approximately the same amount of investable grade silver above-ground as gold. Yet silver is currently 1/75^th the price of gold. This means that when silver is highly demanded, like now — it is both a monetary and an industrial metal — the price often slingshots past gold.

This is precisely what we see happening; look at that vertical line on the right of the chart.

In recent weeks, silver has outperformed gold, gaining 50% this year against gold’s 18% rise. The same thing happened in 2020, when the pandemic precipitated the “fear trade” in precious metals.

Gold is moving higher primarily due to central bank buying, and physical gold purchases in Asia.

Who’s buying all the silver? India and silver-backed ETFs.

India in February purchased a whack of silver bullion, with silver imports surging 260%. The country bought 2,295 tonnes compared to just 637t in January — a new monthly record.

Putting that into perspective, it’s about 70 million ounces, more silver than the US Mint produced in American Silver Eagle coins over the past three years combined.

The Silver Institute reported a 184.3 million-ounce deficit in 2023 on the back of robust industrial demand.

In a recent commentary, SI said industrial demand rose 11% last year to a new record of 654.4Moz, smashing the old record set in 2022.

In fact demand exceeded supply for the third year in a row.

Higher-than-expected photovoltaic (PV) capacity additions and faster adoption of new-generation solar cells raised electrical & electronics demand by a substantial 20%, to 445.1Moz, the institute said.

On the supply side, global silver mine production fell by 1% to 830.5Moz in 2023. Output was constrained by a four-month suspension of operations at Newmont’s Penasquito mine in Mexico due to a strike; lower ore grades; and mine closures in Argentina, Australia and Russia.

The Silver Institute expects demand to grow by 2% this year, led by an anticipated 20% gain in the PV market. Industrial fabrication should post another all-time high, rising by 9%. Demand for jewelry and silverware fabrication are predicted to rise by 4% and 7%, respectively.

Total silver supply should decrease by another 1%, meaning 2024 should see another deficit, amounting to 215.3Moz, the second-largest in more than 20 years.

The general consensus is that precious metals will continue to thrive over a longer horizon.

If the Fed follows through on its plan to lower rates this year, it will cause the dollar to weaken and commodity prices to strengthen. When positive real interest rates, which favor bond investors, turn negative, it will especially affect gold and silver prices to the upside.

Companies mining and exploring for silver have been ignored by investors for a long time, but that has started to change. Exchange-traded funds serving as a proxy for the industry are moving higher. The Global X Silver Miners ETF (SIL) has gained 28% so far this year, while the iShares MSCI Global Silver and Metal Miners ETF (SLVP) is up 32%.

Pure silver is rare

“Native silver” found in the Earth’s crust on its own, is relatively rare. More commonly, it is mined alongside gold, or as a by-product of zinc-lead ore.

The rarity of silver and gold becomes apparent when we consider how little of both have been mined throughout history —  just 6.1 billion oz of gold and 51.3 billion oz of silver. All the gold ever mined in the world could fit into a cube 21.6 meters on each side, and all the above-ground silver could fit into a 55m cube.

While most of the world’s mined gold is still around, either cast as jewelry, or smelted into bullion and stored for investment purposes, the same cannot be said for silver. It’s estimated that 60% of silver is utilized in industrial applications, leaving only 40% for investing. Of the 60% used for industrial applications almost 80% ends up in landfills.

Despite silver being about 17.5 times more plentiful than gold in the Earth’s crust, silver and gold have roughly the same amount, ~2.5 billion ounces, available for investment purposes. However, since very little gold is used by industry, it trades as an investment commodity – prices moving up and down in relation to factors like the US dollar, inflation, interest rates and sovereign bond yields. 

In comparison, silver commands a relatively small amount for investment, just 40% of supply. Because over half of supply is needed for industrial applications, silver trades more like an industrial metal than an investment commodity.

This also explains silver’s volatility. Because the investment market for silver is so small (60% is locked up in industrial uses) prices swing up and down wildly, at relatively low volumes. For this reason, investors nicknamed silver “the devil’s metal”.

Silver North Resources (TSX.V:SNAG)

ETFs are one way to play the silver run, but in my opinion, juniors offer better leverage to a rising price. The problem is finding an exploration company that specializes in silver. The explosion in the silver price has retail investors clambering for pure-play silver explorers, of which there are few, particularly in North America. Fortunately, AOTH has identified one. It’s Silver North Resources, developing silver deposits in Canada’s Yukon Territory.

Silver North focused on Keno Hill silver-mining district — Richard Mills

Silver North offers exposure to one of the country’s most prolific silver districts — Keno Hill. A relatively recent discovery by Snowline Gold has rekindled interest in the Yukon, and Keno Hill is seeing investment from Hecla Mining, the largest silver producer in the United States, following Hecla’s 2022 takeover of Alexco Resources.

Silver North’s underexplored Haldane project demonstrates high-grade, high-width potential akin to the veins being mined at Keno Hill.

Between Haldane and its Tim carbonate replacement deposit (CRD), on the BC-Yukon border, Silver North offers strong discovery and development potential against the bullish backdrop for silver.

Silver North pivoted exclusively to silver when it changed its name from Alianza Minerals last summer.

“When I mentioned it to a few people their eyes lit up, they’re like ‘yeah it’s perfect for you guys,’” CEO Jason Weber recalled in a phone conversation with AOTH, Tuesday. He added:

“Once you get into that silver realm it’s a totally different ball game, and I didn’t really believe them until we did it. We had this nice bump, great reception off the line in August last year, and now I think we’re pretty much instantly recognized as a silver explorer.”

SNAG had a great day on Tuesday, starting the short week with a gain of 18.9% on the Toronto Venture Exchange.

Haldane project

The Keno Hill Silver District was Canada’s second largest primary silver producer and one of the richest silver-lead-zinc deposits ever mined.

At its peak, Keno Hill supported about 15% of the territory’s population and produced more wealth than the Klondike, one of the richest placer gold districts in the world.

According to the Yukon government, from 1913 to 1989, 4.87 million tonnes were mined at an average grade of 1,389 grams per tonne silver, 5.62% lead and 3.14% zinc. Over 65 deposits and prospects have been identified in the district. Most occur within the Keno Hill quartzite as structurally controlled veins close to the Robert Service Thrust Fault.

The district is about 450 km north of the Yukon capital, Whitehorse.

Hecla Mining is now the biggest player in the district, and is ramping up production at its 400 tonne-per-day mill. Hecla commenced production at Keno Hill in mid-2023. The mine is expected to produce 2.7 to 3 million ounces in 2024. Five deposits are present at Keno Hill: Bellekeno, Flame and Moth, Lucky Queen, Bermingham and Onek.

Silver North’s Haldane property is 25 kilometers west of the main Keno Hill deposits, and south of Victoria Gold’s Eagle mine, which poured its first gold in 2019. The 8,164-hectare land package hosts structurally controlled silver veins containing galena, sphalerite, and tetrahedrite-tennantite in quartz-siderite gangue.

The corporate presentation on Silver’s North’s site shows historic small-scale mining — underground workings developed at the Middlecoff and Johnson veins — produced 24.7 tons of 3,102 g/t Ag and 59% lead, and 2.1 tons of 4,600 g/t Ag.

The property showed the potential to double the cumulative strike length of known veins, currently totalling 12 km, with new discoveries in 2019 and 2020 at West Fault and Bighorn.

The company says the project is located adjacent to, and has the same rocks as Hecla’s high-grade Keno Hill silver mine.

Approximately 12 kilometers of cumulative vein exploration potential exists at the Haldane project, with the 27 drill holes completed from surface to date testing less than 600 meters of that total. The best mineralization occurs where the mineralized structures cut the Keno Hill quartzite unit — a similar geological setting for mineralization as at the main Keno Hill deposits mined for over 100 years.

In 2021 Silver North announced a new discovery at the West Fault Zone.

The goal was to find Keno-type mineralization and at least 300 grams-per-tonne rock over a comfortable mining width of 4 meters. They achieved that with the West Fault discovery of 311 g/t Ag over 8.7m. This was followed by 3.14m of 1,315 g/t silver.

According to Silver North, this new zone has been traced over a 100- by 90-meter area with room to expand along strike and at depth.

Yet this discovery, in an incredibly mineral rich area, ripe with mining history, and high-grade mines, went un-noticed by investors who were ignoring gold and silver stocks.

Tim CRD project

South of Haldane, Silver North Resources is working with partner Coeur Mining to develop the Tim property, located on the Yukon side of the Yukon-British Columbia border.

Silver North has an option agreement with Coeur Mining, which can earn 80% ownership in the project by spending $3.5 million on exploration over five years, making $575,000 cash payments and completing a feasibility study within eight years.

Coeur’s Silvertip silver-lead-zinc project, situated 19 kilometers south in BC, is also a CRD deposit; in fact it is one of the highest-grade silver-lead-zinc operations in the world.

Coeur is funding a minimum $700,000 drill program of about 2,000 meters, expected to start in June. Crews would operate out of Coeur’s Silvertip mine camp. Up to six drill pads will test the potential for CRD-style mineralization along almost 2 km of strike length.

Previous work has identified silver mineralization in trenches dating back to the 1980s. A 2022 program conducted by Coeur to verify previous trench sampling returned 468.1 g/t silver, 21.1% lead, and 0.3% zinc over 4 meters from one re-opened trench. Another, located approximately 200 meters along strike, returned 265 g/t silver, 6.7% lead and 0.9% zinc over 8.8m.

GDR project

Along with Haldane and Tim, Silver North now has access to three claims groups in the Silvertip-Midway District known as the GDR project. One of these groups, called Veronica, is adjacent to Tim.

Earlier this month, Silver North announced an option agreement with the three prospectors who own the GDR project.

Under the terms, Silver North will make a series of cash payments totaling $102,000 over four years, and staged share payments totaling 1,560,000 shares over four years, to earn a 100% interest in the project. The deal is subject to a net smelter return (NSR) royalty of 2.4% — 0.9% of which can be purchased for $2 million.

According to Silver North, the GDR project claims cover geology prospective for carbonate replacement deposits similar to that being explored at Tim and at Coeur’s nearby Silvertip mine project.

“The GDR acquisition represents a strategic move to acquire additional ground prospective for high grade CRD silver mineralization in this under-explored district,” SNAG CEO Jason Weber stated. “Despite the early-stage nature of these properties, all three have favorable characteristics for CRD mineralization. In particular, the Veronica claim group has a strong, unexplained multi-element soil geochemical anomaly just west of our Tim property. This complements the Tim property nicely and gives Silver North access to more of the prospective stratigraphy in this district.”

The three properties comprising the GDR project (Veronica, MR and MFW) are road and trail accessible with potential for high-grade Ag-Zn-Pb CRD mineralization similar to the nearby Silvertip mine project owned by Coeur. The claims have Ag-Pb-Zn showings and multi-element soil geochemical anomalies underlain by Paleozoic limestone, in a similar geological setting to CRD mineralization at Silvertip.

Veronica is 11 km north of Silvertip and within 2 km of Silver North’s Tim project. MR and MFW are a further 20 km and 27 km north.

At Veronica a multi-element soil anomaly has been defined over a 450 by 450m area and is open to the east, with values that range from 0.3-31.1 ppm Ag, 60-3,100 ppm Pb, and 50-612 ppm Zn. This new anomaly has not been trenched, drilled or explained by prospecting, and presents a compelling target for exploration follow-up. Limestone and quartzite outcrop in the area.

Importantly, according to the news release, the Veronica claim group partially lies within the area of Interest surrounding the Tim property, and as such, Silver North is obligated to offer the Veronica for inclusion within the Tim option agreement between Silver North and Coeur. If Coeur agrees to include the Veronica claims, it will reimburse one half of Silver North’s acquisition costs.

2024 plans

The company intends to raise enough money for a substantial drill program at Haldane this year; it just closed a $650,000 private placement, and is looking at tapping the market for another $1.5 mil.

VP Exploration Rob Duncan says the plan is to return to the West Fault discovery, to follow up the five drill holes that defined the 100 x 90-meter panel of mineralization, including 311 g/t silver over 8.7m (true width) and 3.14m of 1,315 g/t silver.

New holes will follow the down-dip plunge direction to the south-southwest, stepping out 50 meters along strike. 

Next on the agenda is the Bighorn structure located about 3 kilometers away, where a drill hole in 2019 hit a 2.3 meter-wide vein and returned 125 g/t silver. “We want to get a drill hole into that,” says Duncan.

The third part of the drill program will focus on the Main Fault, which is parallel to the West Fault discovery about 125m away.

“[Main] has only ever been drilled tested down to 60 meters depth and they weren’t really sure that they got out of the overburden,there’s about 6 meters of 20 g/t silver in that hole,” Duncan said, adding, “there’s also a good chip sample on surface that returned over 2 meters of 200 g/t silver. We want to do the exact same strategy we used to discover the West Fault and drill the Main Fault 100 to 200 meters down dip, beneath the weathering and all the oxidation and get a drill hole into that major structure that’s never been tested properly before. That’s the program in a nutshell. It’s about following up on high-grade results that we’ve already got, and two new structures that we know exist… and hoping for a new discovery on both of them.”

Conclusion

Silver North Resources is within a select group of pure-play silver explorers (most others are in Latin America) bringing on new silver deposits to an under-supplied market. Their timing couldn’t be better.

The silver price is breaking out and since January it has climbed an astonishing 50% — even outpacing gold. And this is in a supposedly challenging market for precious metals, with a strong US dollar, high bond yields, and positive real interest rates. If the Fed cuts rates as expected, it will be even better for gold and silver. In Canada, inflation is coming down and pundits are thinking July for the first rate cut.

Silver North has three projects it is developing in the Yukon Territory: Haldane, Tim and GDR.

Haldane is 25 kilometers west of the main Keno Hill deposits, and south of Victoria Gold’s Eagle mine.

The property shows the potential to double the strike length of 12 km, with new discoveries in 2019 and 2020 at West Fault and Bighorn.

The company says the project is located adjacent to, and has the same rocks as Hecla’s high-grade Keno Hill silver mine.

Silver North’s 2021 West Fault discovery featured 311 g/t Ag over 8.7m and 3.14m of 1,315 g/t silver.

South of Haldane, Silver North is working with Coeur Mining to develop the Tim property. Under the option agreement, Coeur can earn 80% ownership in the project by spending $3.5 million on exploration over five years. Coeur is funding a minimum $700,000 drill program of about 2,000 meters, expected to start in June.

Silver North now has access to three claims groups in the Silvertip-Midway District known as the GDR project. One of these groups, called Veronica, is adjacent to Tim (shown on the map above).

As mentioned, the company intends to raise enough money for a substantial drill program at Haldane this year; it just closed a $650,000 private placement, and is looking at raising another $1.5 million.

Silver North has a great management team behind it, and a low share count of just 43.4 million shares outstanding.

Weber is a seasoned geologist with over 25 years’ experience in the industry. He is the former president and CEO of Kiska Metals, acquired in 2016 by Aurico Metals and its advanced-stage Kemess copper-gold project (now owned by Centerra Gold). Weber has also served as director and advisor to several junior resource companies.

VP Exploration Rob Duncan runs the day-to-day field operations. Duncan has over three decades of experience, including stints with producers such as Rio Tinto and Inmet Mining. 

As I was putting together the information for this article I couldn’t help but muse on a key part of the investment thesis for Silver North – the proximity of its properties to two major silver producers, Hecla at Haldane and Tim at Coeur.

If Coeur makes a discovery at the 80/20 owned Tim Project it could eventually add to their resource base at Silvertip. If that happens it would make sense for Coeur to buy Silver North out and thus consolidate Tim to it’s 100% ownership.

But what would this mean for Hecla, which is running the Keno Hill silver mine? If Coeur buys Silver North, they would also get SNAG’s Haldane property, putting a competitor practically next door. Remember, Haldane is just 25 kilometers west of Keno Hill.

Hecla will surely be watching closely this summer, to see whether Coeur makes a discovery at Tim. If that were to happen, it would put pressure on Hecla to buy Silver North before Coeur swoops in.

At the same time, having Hecla in close proximity at Haldane dials up the pressure on Silver North to get as much drilling done there as possible. If another discovery is made, Hecla would surely have to think about acquiring Silver North, thus expanding its land position in the Keno Hill Silver District.

The bottom line for us at AOTH? We consider Silver North (TSX.V:SNAG) the next pure silver play.

Silver North Resources
TSXV:SNAG
Cdn$0.21 2024.05.22
Shared Outstanding 36.8m
Market cap Cdn$8.1m
SNAG website

Richard (Rick) Mills
aheadoftheherd.com
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