Silver One — Exploration update and analysis

Silver One Resources (CN: SVE)

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Research: Metals & Mining

Silver One — Exploration update and analysis

On 15 July, Silver One reported the last of its three tranches of drilling results from its 15,000 metre, 52-hole, reverse circulation (RC) drilling programme at Candelaria to complement the results of its nine diamond core drill holes completed in early 2020. The goals of the drilling programme were 1) to outline deeper, higher-grade silver and gold mineralisation down dip from the previously mined Northern Belle and Mount Diablo open pits, 2) to extend the near-surface, potentially open pit mineralisation to the east and west of the previously mined pits and 3) to examine the potential for porphyry-related mineralisation at depth. In all of these three goals, Silver One was successful.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Metals & Mining

Silver One Resources

Exploration update and analysis

Mining prospects update

Metals & mining

12 October 2021

Price

C$0.40

Market cap

C$83m

C$1.2469/US$

Net cash* (C$m) at end-June 2021

11.1

*Excludes C$0.3m in lease liabilities and C$3.2m in short-term investments and marketable securities.

Shares in issue

207.9m

Free float

80.7%

Code

SVE

Primary exchange

TSX-V

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(20.0)

(31.0)

(38.5)

Rel (local)

(19.2)

(31.6)

(50.4)

52-week high/low

C$0.9

C$0.4

Business description

Silver One Resources is focused on the exploration and development of quality silver projects. Its flagship asset is the past-producing Candelaria Mine in Nevada. It also has options over a number of other assets, including Phoenix Silver (Arizona) and Cherokee (Nevada).

Next events

Q421 drilling programme

Q421

Candelaria updated resource estimate

Late 2021

Candelaria economic study

H222

Metallurgical test results evaluation

2022

Analyst

Charles Gibson

+44 (0)20 3077 5724

Silver One Resources is a research client of Edison Investment Research Limited

On 15 July, Silver One reported the last of its three tranches of drilling results from its 15,000 metre, 52-hole, reverse circulation (RC) drilling programme at Candelaria to complement the results of its nine diamond core drill holes completed in early 2020. The goals of the drilling programme were 1) to outline deeper, higher-grade silver and gold mineralisation down dip from the previously mined Northern Belle and Mount Diablo open pits, 2) to extend the near-surface, potentially open pit mineralisation to the east and west of the previously mined pits and 3) to examine the potential for porphyry-related mineralisation at depth. In all of these three goals, Silver One was successful.

Year end

Revenue (C$m)

PBT*
(C$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

0.0

(2.0)

(2.3)

0.0

N/A

N/A

12/18

0.0

(1.6)

(1.7)

0.0

N/A

N/A

12/19

0.0

(1.7)

(1.3)

0.0

N/A

N/A

12/20

0.0

(2.0)

(1.1)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Average 108.46g/t (3.5opt) intercept grade

Of the 52 holes drilled, 39 intersected mineralisation, with an average intercept of 15.49m and an average grade of 108.46g/t Ag and 0.22g/t Au (125.70g/t AgE) from surface to a vertical depth of 929m. In addition to 35 mineralised RC holes drilled in the region of the Northern Belle and Mount Diablo pits, four holes were drilled to test the potential for iron oxide copper gold (IOCG)/skarn targets. In these cases, while the silver grades intersected by the four holes were relatively low, the gold grades were noticeably high. Drilling north of the Candelaria fault, hole SO-C-20-081 in particular exhibited over 300m of moderate to strong hydrothermal alteration, proceeding downhole from nearer-surface propylitic alteration through quartz-sericite alteration and then into 81m of a diorite porphyry with hydrothermal alteration suggestive of proximity to a potential porphyry/skarn system, including massive sulphide veinlets in a potasically altered diorite with secondary biotite containing 5.99g/t Au over 0.67 metres within a 13.33m zone averaging 0.5g/t Au.

Valuation: Re-rating potential

Silver One has an enterprise value currently of US$55.4m. In its mineral resource update of August 2020, it announced a resource of 30.0Moz Ag in the indicated category and 15.4Moz Ag in the inferred category of resources in the leach pads at Candelaria. It also has a historical estimate of resources not on the leach pads (dating to May 2001) of 44.1Moz in the measured and indicated categories and 34.7Moz in the inferred category of resources. Silver One plans to announce an update to the mineral resources at Candelaria not contained within the leach pads later in 2021 and to follow this up with an economic study in H222. All other things being equal, if an updated resource at Candelaria is confirmed to contemporary standards at anything near the size of the historical resource and/or even a modest mine plan is developed to exploit any of the resources, given that they are located in Nevada, we believe that there is scope for a re-rating of the company’s shares.

Exploration update

Since our initiation note on Silver One, the company has completed a 15,000 metre, 52-hole, reverse circulation (RC) drilling programme at Candelaria. The results of the programme were released to the market in three tranches, on 16 February, 26 May and 15 July 2021 and complement the results of nine diamond core drill holes, which were reported to the market on 26 May 2020.

The goals of the drilling programme were threefold:

To outline the deep, higher-grade silver and gold mineralisation down dip from the previously mined open pits (Northern Belle and Mount Diablo).

To extend the near-surface, potentially open pit mineralisation to the east and west of the previously mined area.

To examine the potential for porphyry-related mineralisation at depth.

In all three of these goals, Silver One was successful.

Outlining deeper, higher-grade mineralisation down dip of existing pits

Assays received confirmed the presence of down-dip, higher-grade silver mineralisation north of the Mount Diablo pit and between the Northern Belle and Mount Diablo pits. Highlights of this portion of the campaign included:

A high-grade intercept of 1,070g/t Ag (34.4oz/t or opt) and 1.48g/t Au over 4.57m within an interval of 25.91m that averaged 248.5g/t Ag and 0.4g/t Au in hole SO-C-21-92 (see Exhibit 1, below), located by the eastern rim of the Northern Belle pit and approximately 42m east of historical hole N228 (which averaged 670g/t Ag over 13.7m) and 300m north-west of diamond hole SO-C-19-047 (see Exhibit 2), which returned 1,129g/t Ag (36.3opt) and 1.33g/t Au over 8m within 28m that averaged 350g/t Ag and 0.45g/t Au.

A high-grade intercept of 1,776g/t Ag (57.1opt) and 2.55g/t Au over 1.52m within an interval of 7.62m that averaged 563g/t Ag and 0.73g/t Au in hole SO-C-21-73 (also in the environs of diamond hole SO-C-19-047) and 1,032g/t Ag (33.2opt) and 1.51g/t Au over 3.05m within 12.2m of 407g/t Ag and 0.55g/t Au (hole SO-C-20-59).

An intercept of 546g/t Ag (17.6opt) and 1.16g/t Au over 3.05m within an interval of 13.72m that averaged 233g/t Ag and 0.47g/t Au in hole SO-C-21-74 and 477g/t (15.3opt) silver and 1.47g/t Au over 3.05m within a 7.62m interval averaging 273g/t Ag and 0.74g/t Au in hole SO-C-21-79.

An intercept of 407g/t Ag (13.1opt) and 0.5g/t Au over 6.1m within an interval of 9.1m that averaged 295g/t Ag and 0.4g/t Au in drill hole SO-C-20-60.

Drill holes SO-C-20-69, SO-C-21-72A and SO-C-21-79 extended the down-dip mineralisation by an additional 250m to the north of the Mount Diablo pit, with silver equivalent grades that greatly exceeded the historical average grade of 88g/t Ag mined in both open pits. Drill holes SO-C-20-55A, SO-C-56A, SO-C-20-057 and SO-C-20-065 also extended it by an additional 100m to the north-northeast of the Northern Belle pit.

Significantly, Silver One reported that this higher-grade mineralisation is ‘beginning to form coherent clusters that could potentially define mineralized bodies that may be accessible by either an expansion of the open pit or by underground methods’.

A map of the locations of each of the new holes in relation to the Mount Diablo and Northern Belle pits and also the locations of historical drill holes is provided in the exhibit below:

Exhibit 1: Candelaria pit area drill collars and significant assay results

Source: Silver One

Extending near-surface mineralisation to the east and west of Mount Diablo

In addition to higher-grade, down-dip mineralisation, drilling to the east and west of the Mount Diablo pit also demonstrated significant mineralised widths with silver grades exceeding historical cut-off grades, thereby confirming the continuity of robust near-surface silver oxide mineralisation along strike for at least 500m to the west and 100m to the east of the Mount Diablo pit. Highlights of this aspect of the drilling programme include:

Drill holes SO-C-21-85, SO-C-21-87, SO-C-21-94, SO-C-21-96 and SO-C-21-97 extended the along strike, potential open pit mineralisation by 500m to the west of the Mount Diablo pit, while hole SO-C-21-93 extended it by approximately 100m to the east.

Intercepts include 300g/t Ag (9.6opt) and 0.74g/t Au over 9.14m in hole SO-C-21-87 and 463g/t Ag (14.9opt) and 0.53g/t Au over 1.52m, within an interval of 22.86m that averaged 117g/t Ag and 0.23g/t Au in hole SO-C-21-98.

This aspect of the drilling programme suggests that these areas may potentially be amenable to open pit mining, with the prospect of combining the newly mined material with historic heap leach material and thereby potentially increasing both overall silver grades and recoveries. In the meantime, the mineralised system remains open along strike in both directions in an environment in which numerous historical workings occur on the property along the main east-west trending mineralised structure and have been traced for over 4km to the east and west of the two open pits, thereby increasing the potential for the discovery of additional, similar mineralised systems.

Drill hole summary

Of the 52 RC holes drilled, 39 were mineralised – in some cases exhibiting high silver grades in excess of historical cut-off grades – while 13 (25%) were either abandoned or returned low or insignificant metal grades. A summary of all 39 RC holes exhibiting mineralisation is provided in Exhibit 2, below, which also compares the results with those of nine diamond drill holes reported to the market in March and May 2020.

Exhibit 2: Candelaria RC drill programme results

Drill hole

Total depth (m)

From (m)

To (m)

Width (m)

Gold grade
(g/t)

Silver grade
(g/t)

Diamond holes

SO-C-19-046

98.00

163.76

24.10

0.31

154.68

SO-C-19-047

260.00

299.62

31.62

0.73

307.86

SO-C-19-048

325.73

348.00

19.57

0.50

273.75

SO-C-19-049

330.00

349.98

19.98

0.29

96.47

SO-C-19-050

306.04

331.63

25.59

0.31

172.16

SO-C-19-051

353.36

372.74

19.38

0.26

152.19

SO-C-19-052

150.00

258.00

20.02

0.18

63.67

SO-C-19-053

172.00

192.00

14.00

0.51

163.27

SO-C-19-054

236.00

254.00

12.00

0.26

48.43

Totals/averages (diamond holes)

98.00

372.74

20.70

0.39

173.11

RC holes

SO-C-20-055A

299

242.32

275.84

13.71

0.19

35.55

SO-C-20-056A

329

216.41

316.99

25.91

0.17

79.94

SO-C-20-057

319

210.31

310.90

15.24

0.35

103.30

SO-C-20-059

390

294.13

355.09

19.81

0.38

258.52

SO-C-20-060

398

358.14

367.28

9.14

0.40

295.00

SO-C-20-061

445

237.74

390.14

4.57

0.04

70.34

SO-C-20-062

376

324.61

342.90

18.29

0.24

149.91

SO-C-20-064

398

347.47

352.04

4.57

0.14

58.60

SO-C-20-065

250

213.36

233.17

19.81

0.20

84.40

SO-C-20-066

349

289.56

291.08

1.52

0.33

70.00

SO-C-20-067

465

349.00

428.24

4.57

0.14

119.99

SO-C-20-068

152

111.25

141.73

30.48

0.06

40.00

SO-C-20-069

488

484.63

487.68

3.05

0.20

86.00

SO-C-20-070

300

245.36

263.65

18.29

0.09

48.00

SO-C-21-071A

287

222.50

228.60

6.10

0.11

96.00

SO-C-21-072A

561

432.82

446.53

13.72

0.28

198.00

SO-C-21-073

235

108.20

224.03

25.92

0.35

211.04

SO-C-21-074

312

263.65

288.04

24.39

0.34

153.16

SO-C-21-075

265

234.70

252.98

6.09

0.11

40.70

SO-C-21-076

480

370.33

374.90

4.57

0.11

33.70

SO-C-21-077

296

199.64

213.36

13.72

0.19

106.40

SO-C-21-078

233

184.40

198.12

13.72

0.17

97.90

SO-C-21-079

427

312.42

420.62

12.19

0.70

270.49

SO-C-20-080

488

173.74

188.98

3.04

0.14

68.45

SO-C-20-081

990

927.97

928.64

0.67

5.99

14.60

SO-C-20-083

122

0.00

121.92

12.18

0.07

21.77

SO-C-20-084A

130

15.24

129.54

32.00

0.10

44.76

SO-C-20-085

110

70.10

97.54

27.43

0.36

125.36

SO-C-21-087

130

16.76

103.63

51.81

0.20

86.10

SO-C-21-090

198

92.96

138.68

21.34

0.29

85.33

SO-C-21-091

197

147.83

155.45

7.62

0.20

99.10

SO-C-21-092

210

134.11

160.02

25.91

0.40

248.50

SO-C-21-093

241

172.21

198.12

25.91

0.10

77.91

SO-C-21-094

123

86.87

89.92

3.04

0.10

28.30

SO-C-21-095

643

100.58

516.64

6.09

0.12

18.92

SO-C-21-096

221

16.76

166.12

42.66

0.08

51.88

SO-C-21-097

152

36.58

62.48

7.62

0.13

50.18

SO-C-21-098

166

117.35

140.21

22.86

0.23

116.80

SO-C-21-099

367

251.46

342.90

4.57

0.08

51.26

Totals/averages (RC holes)

12,540

0.00

928.64

15.49

0.22

108.46

Totals/averages (all holes)

0.00

928.64

16.47

0.26

123.70

Source: Silver One, Edison Investment Research. Note: Holes highlighted in green drilled outside the area of the Northern Belle and Mount Diablo pits (see text below).

For the purposes of the above analysis in Exhibit 2, readers should note that (for ease of presentation and comparison) holes with multiple intercepts have had their intercepts conflated with their grades expressed as an average, weighted according to the width of each individual intercept. A number of features of the analysis are noteworthy:

All but four RC holes (highlighted in green) were drilled in the environs of the Northern Belle and Mount Diablo pits. The four exceptions were focused on testing the potential for IOCG/skarn targets identified in dump samples outside an historical adit near to the Georgine pit (see below).

Mineralisation extends from surface to a downhole depth of 928.64m; in this case (hole SO-C-20-081), the hole was drilled at a dip of 90° and hence the vertical depth was also 928.64m. Excluding this hole (because it was drilled away from the Northern Belle and Mount Diablo pits), the deepest hole in the region of the two pits had a downhole depth of 487.68m (hole SO-C-20-069) and was also drilled at a dip of 90° and hence its vertical depth was also 487.68m.

The average depth of each (mineralised) RC hole drilled was 322m (downhole).

The majority of RC holes (19 out of 39) were drilled at a dip of 90° (ie vertically downwards).

Estimated true widths for holes 083, 084A, 087, 093, 094, 095, 096, 097, 098 and 099 (mostly to the west of the Mount Diablo pit) ranged from 83% to 99% and averaged 90%. The majority (six out of nine) of these holes were drilled at a dip of 90°, from which we may deduce that mineralisation intersected was dipping at angles between 8° and 34° with an average dip of 26° (ie it is relatively flat lying).

Estimated true widths for holes 090, 091 and 092 (to the east of Northern Belle) are estimated at 65% of observed widths, which implies a steeper dip of 54–70°.

The average elevation of the drill hole collars was 1,846m (±66m) above mean sea level.

The average width of mineralisation intersected by the RC holes was 75% of that intersected by the diamond drill holes (15.49m cf 20.70m). The average grade of mineralisation intersected by the RC holes was 63% of that intersected by the diamond drill holes (108.46g/t cf 173.11g/t). Among other things, this could suggest upside potential to both grades and widths in the event that selective holes are re-drilled with a diamond drill rig.

In total, the 39 RC drill holes made 80 discrete intersections of mineralisation. Of note is the fact that the same widths of intersection were recorded on multiple occasions, as shown in the table below. This reflects both the frequency of sampling of the RC drilling every 5ft (1.52m), as well as the continuity and geometry of the deposit.

Exhibit 3: Frequency of occurrence of individual mineralised intersections

Width of intersection (m)

Multiple of 1.52

Frequency of occurrence

Frequency (percentage of total)

1.52

1

20

25%

3.05

2

12

15%

4.57

3

9

11%

6.10

4

6

8%

7.62

5

6

8%

9.14

6

5

6%

10.67

7

2

3%

12.19

8

2

3%

13.72

9

6

8%

15.24

10

1

1%

18.29

12

3

4%

19.81

13

1

1%

22.86

15

3

4%

24.38

16

1

1%

25.91

17

1

1%

30.48

20

1

1%

Other

1

1%

Total

80

100%

Source: Edison Investment Research (underlying data: Silver One). Note: Totals may not add up owing to rounding.

Examining the potential for porphyry-related mineralisation at depth

In addition to the 35 mineralised RC holes drilled in the region of the Northern Belle and Mount Diablo pits, four additional holes (highlighted in green in Exhibit 2) were drilled to test the potential for IOCG/skarn targets. This system was first identified in historic adit dumps near to the Georgine pit, which returned assays of up to 2.76% Cu, 25g/t Ag and 0.67g/t Au, and more recently in felsic dykes and altered intrusives. The possibility of a porphyry-related mineralised system below the existing area of near-surface silver oxide mineralisation adds an entirely new dimension to the Candelaria prospect. To examine it, drill targets were identified from Silver One’s 2019 airborne magnetic and IP surveys. The locations of the four drill holes in question are provided in Exhibit 4, below.

Exhibit 4: Candelaria drill hole collars outside pit area

Source: Silver One

For orientation, readers may observe that hole SO-C-21-095 appears in both Exhibit 1 (at the bottom left of the map) and Exhibit 4.

In this case, while the silver grades intersected by the four holes were relatively low, the gold grades were noticeably high (see Exhibit 2). Drilling north of the Candelaria fault, hole SO-C-20-081 (drilled vertically) in particular exhibits over 300m of moderate to strong hydrothermal alteration from the base of Tertiary to Quaternary volcanic rocks at 647.7m to the bottom of the hole at 990m. Alteration is reported to proceed downhole from nearer-surface propylitic alteration through quartz-sericite alteration and then into 81m of a diorite porphyry with hydrothermal alteration suggestive of proximity to a potential porphyry/skarn system, including massive sulphide veinlets in a potasically altered diorite with secondary biotite containing 5.99g/t Au over 0.67 metres within a 13.33m zone averaging 0.5g/t Au.

Next steps

After the completion of its RC drilling programme, Silver One has three ongoing initiatives at Candelaria:

An additional phase of drilling is planned for Q421, which will serve to test the near surface, along strike extensions further away from Northern Belle and Mount Diablo and also to investigate new targets identified from recent surface sampling programmes.

To report an updated mineral resource estimate at Candelaria by the end of CY21.

Material collected from the RC programme from holes near to the Mount Diablo pit will also be used for metallurgical testing. In combination with the ongoing metallurgical studies being conducted on the historic heap leach pads, this information will be used to prepare an economic study during H222. Among other things, the study will investigate the potential to reprocess the historic heap leach pads alone, as well as combining them with near-surface in-situ mineralisation close to the existing pads, with the goal of potentially increasing the overall grade of silver and/or its recovery.

Beyond Candelaria, Silver One has also commenced a 1,500m diamond drilling programme on its 100%-owned Cherokee project in eastern Nevada (see our initiation note, Candelaria shining brightly, published on 28 August 2020). It is also advancing its Phoenix Silver project in Arizona (see below).

Cherokee (Nevada)

On 17 August, Silver One announced the start of a 1,500m diamond drilling programme at Cherokee in eastern Nevada. Cherokee is a district-sized prospect covering 5,200ha (52km2) encompassing a 12km long by 4km wide structurally controlled silver-copper-gold system with multiple epithermal vein targets that have never been drill tested. The current drilling will therefore test rich silver-copper-gold epithermal vein targets, both along strike and to depth, on patented claims overlying the past producing Cherokee and Southeast Cherokee historical workings. Additional drilling of veins and targets outside patented land (but still within the company’s claims) is planned for 2022 following environmental permitting. Work performed to date also leads management to believe that there is excellent potential to discover additional mineralised systems within the company’s property holdings.

The Cherokee and Southeast Cherokee veins occur within an extensive structural zone of multiple veining and alteration. Individual vein thicknesses vary from 2–10m within a wider 50m-thick envelope of hydrothermally altered rock, including sheeted and/or stockwork quartz-calcite veinlets that strike NW and generally dip 60–75° to the southwest. Surface sampling along the Cherokee vein system has returned multiple surface samples of c 100g/t silver, with highs of 954g/t Ag and 4.8% Cu at Cherokee and 1,163g/t Ag and 4.3% Cu in combination with strongly elevated gold grades on the Southeast Cherokee vein. Crustiform and colloform textures at old Cherokee workings illustrate classic epithermal boiling point characteristics. They are also similar in nature to veins exploited in the early mining of Pioche, 75km to the north of Silver One’s claims, which were hosted in Paleozoic limestones of similar age to those that underlie much of Cherokee.

Exhibit 5: Total magnetic intensity map of the Cherokee project showing main target areas

Source: Silver One

Subsequent mining at Pioche also uncovered larger tonnage, base and precious metal-bearing carbonate replacement deposits, which were successfully mined until the mid-1990s. A third type of mineralisation may also be present in the form of a porphyry molybdenum deposit associated with an interpreted buried intrusive in the southeastern portion of the claims that was targeted by exploration in the 1980s and subsequently exhibited a strong magnetic high in Silver One’s 2019 airborne magnetometer survey. Three-dimensional modelling of the magnetic data subsequently identified a large northeast oriented zone of low magnetic susceptibility by the eastern margin of the Viola and Blue Nose areas (see Exhibit 5). Canyon Resources’ drilling of this area in the 1980s was designed to explore a buried porphyry molybdenum target, but did not penetrate the overlying limestone cover rocks. Nevertheless, the geophysical features associated with this zone have strong similarities with other large known copper, molybdenum porphyry and/or precious metal deposits (which is consistent with the observed corridor of hydrothermal alteration in limestones).

The veins that are Silver One’s primary initial target have been traced on the company’s patented claims for over 1.75km along strike and are known to extend off the patents to both the northwest and southeast. Drilling will test the veins both along strike and at depth on patented claims overlying the past producing Cherokee and Southeast Cherokee historic workings. Additional drilling off patented land, but still within the company’s claims, targeting the Johnnie, Mojoto and Hidden Treasure veins, is planned for 2022 once environmental permitting has been completed.

Phoenix Silver (Arizona)

The Phoenix Silver project is located within the Arizona Silver Belt, which occurs on the margins of the prolific copper producing area near Globe (Arizona) and which hosts a number of small historic mines (eg the McMorris, Buckeye and Stonewall Jackson mines), but where mining majors such as BHP, Rio Tinto, and Freeport McMorran also have producing mines as well. The deposits are characterised by both native silver and other silver bearing minerals in vein structures.

Most of the veins trend east-west, similar to the mineralised structures at McMorris and Buckeye. In addition, several vein structures are partially exposed on the property and several super high grade native silver vein fragments have been uncovered from beneath the overburden just downslope from the projection of some of these veins. These samples are interpreted to be derived from the nearby vein structures, as determined by both the intergrowth of the quartz and carbonate with native silver and other silver minerals and by the non-abraded physical nature of the fragments, which suggests that they have not been transported very far.

Exhibit 6: Phoenix Silver high-priority targets

Source: Silver One.

Where they have been assayed, the samples have, in general, returned grades from background to 149 g/t Ag. However, one particularly notable sample from the central area of the property weighed 417lbs and was observed to contain large amounts of native silver (see 417Ibs fragment in Exhibit 7). This exceptionally rare fragment was not assayed to preserve its quality and integrity. However, one 18.7lbs sample was assayed by concentrate sampling techniques at Skyline Assayers & Laboratories in Tucson and found to contain 459,000g/t silver (ie 45.9% silver or 14,688oz/t).

Exhibit 7: Photograph of vein fragments discovered at Phoenix Silver, Arizona

Source: Silver One

A full suite of photographs of vein fragments discovered at Phoenix Silver is available on Silver One’s website.

Hitherto, Silver One has conducted detailed mapping and sampling at Phoenix Silver along with soil geochemical and geophysical surveys to explore for covered areas of the vein structures that may be the source of some of some of the super high-grade vein fragments already discovered (see our initiation note, Candelaria shining brightly, published on 28 August 2020). Now that this process is complete however, Silver One is in a position to drill test its findings and has lodged a Plan of Operations at the Tonto National Forest. To date, this process has been delayed by the US Forest Service as it has diverted resources to fight the forest fires that have swept across the western United States in recent months. Nevertheless, the drill permitting process is underway and is now expected to be concluded in Q421.

As at Cherokee however, Silver One’s management also believes there is evidence of two mineralising events at Phoenix Silver, with a Tertiary era porphyry event overprinting the super high grade veins emplaced in the Precambrian era.

Valuation considerations

Our Mining Prospects notes are not intended to include detailed financial modelling or valuations of the companies concerned. However, the following are some observations that investors or potential investors may consider relevant in assessing Silver One’s current enterprise value (market cap minus net near cash) of US$55.4m.

On 18 August, Silver One Resources announced an updated mineral resource on its heap leach pads at its flagship, past producing Candelaria silver project in Nevada. While there was a slight, 5.7% reduction in overall size of the comparable resource relative to its previous, historical estimate (performed in May 2001), this difference could largely be explained by a conservative methodology, including capping high silver values and low estimated densities. Importantly, however, the update promoted a significant portion of the resource from the inferred to the indicated category. Overall, the updated global resource in leach pads in the indicated plus inferred categories at Candelaria amounted to 45.4Moz silver (30.0Moz indicated and 15.4Moz inferred) compared with an historical resource of 48.2Moz all in the inferred category (see Exhibit 8). When it was published, the updated resource for the leach pads at Candelaria superseded the equivalent historical resource relating to the leach pads. The following is a table of the updated resource at Candelaria as well as the residual historical resource which was not the subject of the update (ie it excludes the resources contained within the leach pads).

Exhibit 8: Silver One updated cf historical resource comparison

Category

Updated resource

*Historical resource

Leach pads

*Residual total excluding leach pad

Thousand tonnes (kt)

Ag grade (oz per tonne)

Silver resource
(koz)

*Thousand tonnes (kt)

*Ag grade (oz per tonne)

*Total resource
(koz)

Measured

0

0.00

0

3,391

4.44

15,054

Indicated

22,184

1.35

30,017

10,231

2.83

29,005

Inferred

11,451

1.34

15,397

18,353

1.89

34,676

Source: Edison Investment Research, Silver One, PAH, Silver Standard Resources. Note: *Excluding leach pads. The historical mineral resource estimate used “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource”, which are categories set out in NI 43-101. Accordingly, Silver One considers these historical estimates reliable as well as relevant as it represents key targets for exploration work by Silver One.

The historical resource remains extant, albeit with the proviso that additional work will be required to bring it up to contemporary standards. Once this work is completed, there is no guarantee the updated resource at Candelaria will approximate the historical one, especially given the requirement for reasonable prospects of economic extraction (although the fact that the updated resource for the leach pads reconciled well with the equivalent historical resource augurs well for the balance of the deposits being drilled).

These resources (either updated or historical and updated) may be compared with Silver One’s enterprise value (EV) of US$55.4m.

In an update to our report Gold stars and black holes published in January 2019, we calculated a weighted average in-situ value for undeveloped silver resources of US$0.62 per total ounce (at a silver price at the time of US$26.00/oz). The components of the analysis (excluding Silver One) are shown in the graph below:

Exhibit 9: Value of total in-situ silver resources (US$/oz)

Source: Edison Investment Research (underlying data Refinitiv, company sources)

Whereas previous work had yielded discrete results for the measured, indicated and inferred categories of resources, in the case of the updated analysis, the results generated on this basis were (in the majority of instances) to a low level of statistical confidence and so have been disregarded in favour of the blended average valuation of US$0.62 per total ounce.

Silver price

Since Edison’s updated in-situ value for undeveloped silver resources was calculated, the silver price has fallen by 13.3%, from US$26.00/oz to US$22.55/oz. Within the context of the above analysis, the ratio of the average in-situ value calculated in our most recent update to the prevailing price of silver was 2.4%, which is at the bottom of its historical range of 2.8–4.1% (see Exhibit ). Alternatively, the empirical relationship between the in-situ value of silver resources and silver metal may be derived from a regression analysis between the two, as depicted in Exhibit 10 (note, however, that with a Pearson product moment correlation coefficient of 0.56, the analysis may not be said to be statistically significant at the 5% level, given the number of data points; that is to say, there is a more than 5% chance that the observed correlation between in-situ silver values and the silver price occurred by chance):

Exhibit 10: In-situ value of total silver resources versus spot price of silver, 2014–21

Exhibit 11: In-situ value of total silver resources as a percentage of the spot silver price, 2014–21

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 10: In-situ value of total silver resources versus spot price of silver, 2014–21

Source: Edison Investment Research

Exhibit 11: In-situ value of total silver resources as a percentage of the spot silver price, 2014–21

Source: Edison Investment Research

There are two potential methods to address the change in the silver price since Edison’s updated value of US$0.62/oz (at a silver price at the time of US$26.00/oz) was calculated:

Applying the average percentage ratio of 3.11% observed over the seven-year period (see Exhibit ) to the silver price at the time of writing would imply a blended average value of in-situ resources of US$0.70/oz (ie a 12.9% premium cf US$0.62/oz).

The (linear) best-fit line of the regression analysis between the in-situ valuation of resources and the spot price of silver (the dashed line in Exhibit ) would suggest that the value of in-situ resources at a spot price of silver of US$22.55/oz should be US$0.66/oz (ie an 6.5% premium cf US$0.62/oz).

In addition, investors should bear in mind the fact that Candelaria is located in a premium mining jurisdiction (see below).

The value of Nevada as a jurisdiction

In its 2020 survey of Investment Attractiveness, the Fraser Institute ranked Nevada the top jurisdiction for mining investment, worldwide.

Exhibit 12: Fraser Institute index of Investment Attractiveness, 2020 (Nevada highlighted)

Source: Fraser Institute

On this basis, it might be expected that Silver One’s resources should command a premium rating. In the case of our updated analysis, the highest-value rating observed among the junior silver explorers (with a resource of a comparable size to Silver One) is US$1.23/oz for a resource located in Australia.

A note on Silver One’s financial study

Silver One is preparing an economic study on Candelaria for completion in H222. Among other things, the study will investigate the potential to reprocess the historic heap leach pads alone, as well as combining them with near-surface in-situ mineralisation close to the existing pads, with the goal of potentially increasing the overall grade of silver and/or its recovery. In our report, Gold stars and black holes published in January 2019, we calculated that companies with projects at the preliminary (or scoping study) stage of development are typically valued at between -4.8% and 50.7% of attributable NPV, with a weighted average of 11.7% of attributable NPV.

Financials

Silver One had net cash on its balance sheet of C$14.1m at end-June 2021, including C$0.2m in short-term investments and C$3.0m in marketable securities (and C$0.3m in lease liabilities).

Within the context of its cash resources, it is notable that the well known mining financier, Mr Eric Sprott (via a subsidiary company), has a holding of 33.1m shares in the company (c 15.0% of the total), plus an estimated 16.6m warrants, which is unchanged since his active participation in Silver One’s C$9.5m equity raising in July last year. Mr Sprott has been a regular supporter of Silver One and the July 2020 equity raising was the third occasion on which he has invested in the company.

Excluding investments in short-term securities and proceeds from the completion of the sale of its Mexican assets earlier this year, Silver One’s pre-financing cash outflow was C$5.6m in FY20, followed by C$2.6m in Q121 and C$2.0m in Q221.

Exhibit 13: Financial summary

C$'000s

2016

2017

2018

2019

2020

December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

0

0

Cost of Sales

0

0

0

0

0

Gross Profit

0

0

0

0

0

EBITDA

 

 

(1,074)

(1,994)

(1,616)

(1,565)

(1,911)

Operating Profit (before amort. and except.)

 

 

(1,074)

(1,999)

(1,631)

(1,710)

(2,068)

Intangible Amortisation

0

0

0

0

0

Exceptionals

(25)

(1,070)

0

0

0

Other

(3)

(9)

(15)

105

(51)

Operating Profit

(1,102)

(3,078)

(1,647)

(1,605)

(2,119)

Net Interest

0

15

27

(9)

50

Profit Before Tax (norm)

 

 

(1,074)

(1,984)

(1,605)

(1,719)

(2,018)

Profit Before Tax (FRS 3)

 

 

(1,102)

(3,063)

(1,620)

(1,614)

(2,069)

Tax

0

0

0

0

0

Profit After Tax (norm)

(1,077)

(1,993)

(1,620)

(1,614)

(2,069)

Profit After Tax (FRS 3)

(1,102)

(3,063)

(1,620)

(1,614)

(2,069)

Average Number of Shares Outstanding (m)

52.3

85.2

97.0

126.9

183.9

EPS - normalised (c)

 

 

(2.1)

(2.3)

(1.7)

(1.3)

(1.1)

EPS - normalised and fully diluted (c)

 

 

(2.1)

(2.3)

(1.7)

(1.3)

(1.1)

EPS - (IFRS) (c)

 

 

(2.1)

(3.6)

(1.7)

(1.3)

(1.1)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

-

-

-

-

-

EBITDA Margin (%)

-

-

-

-

-

Operating Margin (before GW and except.) (%)

-

-

-

-

-

BALANCE SHEET

Fixed Assets

 

 

6,506

7,705

11,511

14,947

13,792

Intangible Assets

20

53

76

105

80

Tangible Assets

6,486

7,653

11,435

14,842

13,550

Investments

0

0

0

0

162

Current Assets

 

 

2,474

4,271

1,224

3,299

20,634

Stocks

0

0

0

0

0

Debtors

51

370

195

254

328

Cash

2,423

301

329

445

11,342

Other

0

3,600

700

2,600

8,964

Current Liabilities

 

 

(65)

(583)

(550)

(647)

(1,085)

Creditors

(65)

(583)

(550)

(532)

(917)

Short term borrowings

0

0

0

(115)

(168)

Long Term Liabilities

 

 

0

0

0

(311)

(177)

Long term borrowings

0

0

0

(311)

(177)

Other long-term liabilities

0

0

0

0

0

Net Assets

 

 

8,915

11,393

12,185

17,288

33,165

CASH FLOW

Operating Cash Flow

 

 

(497)

(1,816)

(1,266)

(863)

(1,154)

Net Interest

0

15

27

(9)

50

Tax

0

0

0

0

0

Capex

(38)

(4,586)

961

(4,370)

(4,400)

Acquisitions/disposals

(20)

0

0

0

0

Financing

2,947

4,264

306

5,474

17,021

Dividends

0

0

0

0

0

Net Cash Flow

2,392

(2,122)

28

232

11,517

Opening net debt/(cash)

 

 

(31)

(2,423)

(301)

(329)

(19)

HP finance leases initiated

0

0

0

0

0

Other

0

0

0

(541)

(539)

Closing net debt/(cash)

 

 

(2,423)

(301)

(329)

(19)

(10,997)

Source: Company sources, Edison Investment Research.


General disclaimer and copyright

This report has been commissioned by Silver One Resources and prepared and issued by Edison, in consideration of a fee payable by Silver One Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Silver One Resources and prepared and issued by Edison, in consideration of a fee payable by Silver One Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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