Defiance Silver is targeting new discoveries and low-cost value creation in Mexico
Defiance Silver's flagship project is in the state of Zacatecas, Mexico, one of the most prolific Mexican mining states.
By Jason Smith
Gold and silver both look set up for long-term uptrends.
Silver's legacy status as a monetary metal means its prices tend to move in line with gold, and the yellow metal should benefit from an ongoing low interest-rate environment, waves of government stimulus and higher inflation expectations.
Some investors in precious metals prefer silver to gold, as silver tends to deliver more leverage in a time of rising prices. In the equity space, that "leverage-ability" can be compounded by the fact that mines where the primary metal is silver are relatively rare, which keeps the universe of primary silver companies small.
One place where you can find such mines is Mexico, a country whose historical silver production reaches into the billions of ounces over a time horizon that goes back to the 1500s. Moreover, according to The Silver Institute, the country is consistently within the top two or three silver producers in the world.
That's true, in part, because companies over the last few decades have been using modern exploration techniques to breathe new life into historically productive areas. Defiance Silver's (TSXV: DEF | OTCQX: DNCVF) projects in the Zacatecas district (home to an estimated 1 billion ounces of historical silver production) are following just that path.
Between the active drilling program on its San Acacio project in the region and the large gold-copper resource it controls in Michoacán state, Defiance appears well-positioned to deliver leverage of its own.
"Leadership is strongly aligned with shareholders, and we have a plan for growth that's happening now. We have active exploration programs, including drilling, and potential share price catalysts should be coming on a regular basis." — Chris Wright, Chairman & CEO, Defiance Silver Corp.
Zacatecas projects show an upside in drilling
San Acacio is the most advanced of the large land package the company holds in the Zacatecas region.
Defiance is actively drilling at San Acacio in the belief that modern exploration techniques like geophysics will allow it to vector in on new sources of silver from the Veta Grande vein system that has produced copious amounts of silver for the region over the centuries.
With encouraging results from the latest 5,000 m of drilling at San Acacio that the company recently doubled its planned program there to 10,000 m.
The San Acacio Silver deposit is hosted within the historic San Acacio mine, located within the Zacatecas Silver District.
Image caption: The San Acacio Silver deposit is hosted within the historic San Acacio mine, located within the Zacatecas Silver District.
The reason for this success, says Defiance's VP of Corporate Development, Doug Cavey, has been the exploration team's ability to "use a mineral systems approach to identify key target areas that needed to be drilled on the project."
Based on recent strong silver intervals generated by this work, Cavey believes that Defiance has the chance to define additional mineralization on the Veta Grande vein system and to outline mineralization on other areas identified as worthy of follow up.
Plus, San Acacio's 17.9 Moz inferred, silver-equivalent resource gives it a great base to start from.
Tepal's large gold-copper resource provides optionality
That's also true of the company's Tepal gold-copper project in Michoacán.
According to a preliminary economic assessment (PEA) produced for Tepal, it contains a Measured and Indicated mineral resource totalling 1.8 million oz gold and 813 million pounds copper in the Measured and Indicated categories.
That report demonstrated Tepal had a net present value (NPV), discounted at 5 per cent, of USD$169 million. That estimate assumes USD$1,250 gold and USD$2.50 copper. Considering that gold is currently trading near USD$1,800 and copper near USD$4.50, those base-case prices may very well be conservative.
The Tepal project is a 100 per cent owned advanced stage exploration project with a current 4 Moz gold equivalent Measured and Indicated resource (2013 PFS, 2017 PEA).
At USD$1,375 gold and USD$2.75 copper, the PEA's after-tax NPV projections using a 5 per cent discount for the project jump from USD$257. At USD$1,500 gold and USD$3.00 copper, the project's after-tax NPV (5% discount) increases to USD$345 million. That kind of potential upside explains why Defiance recently locked up more key ground in the area.
Defiance's Chairman and CEO, Chris Wright, says of the acquisition, "We wanted to acquire new targets and be sure we have the land needed for mine infrastructure, as Tepal is an advanced-stage project."
Tepal's gold-copper optionality supplements the leverage to silver offered by San Acacio.
The right team for the job
A company with this much of a story to tell almost always owes its success to a great management team, and Defiance Silver is no different. The team at Defiance combines geologic expertise with financial acumen and an ability get its story in front of investors.
Says Wright of the group he has assembled, "We have complementary skillsets and pretty much all the bases covered — it's a good mix of financial and technical experience."
It's also a team with a lot of Mexico-centric experience. Cavey believes that's been one of the key factors in its recent drilling success at San Acacio, noting, "Our on-the-ground team has a lot of experience working in the district. We're a data-heavy company that wants to squeeze every drop out of the historical data on San Acacio."
Wright adds, "These are people who understand the philosophy of discovery and value creation."
The team was also behind Defiance Silver completing its uplisting to the OTCQX Best Market. To qualify for this, companies must meet high financial standards, follow best practice corporate governance, and demonstrate compliance with applicable securities laws.
Share price catalysts on the horizon
Looking ahead, Wright and Cavey see several factors that could result in higher trading levels for Defiance Silver's share price.
Between San Acacio and Tepal, the company has a large resource base with a lot of upside. It has projects that offer leverage to the prices of their underlying metals. And it has a seasoned team of explorers on the ground, with more drill results on the way from its expanded program at San Acacio.
Defiance plans to aggressively develop its San Acacio Silver deposit along its 5.6 km concessions.
"Leadership is strongly aligned with shareholders and we have a plan for growth that's happening now. We have active exploration programs, including drilling, and potential share price catalysts should be coming on a regular basis," Wright notes.
With silver, gold, and copper all in up-trends, it has the sounds of a winning game plan for Defiance Silver and its investors.
To learn more about Defiance Silver, visit their website here.
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Further information on Defiance Silver's projects can be found in these reports: