Fri June 07 2013
The next U.S. silver mine will be located in Montana, not far from the state’s border with Idaho and in a major historic silver producing area. Indeed, according to the company involved, Black Mountain Resources’ chairman, Peter Landau, speaking in London yesterday, first production will start up from the company’s New Departure mine within the next few weeks. Black Mountain owns a 70% majority stake in three silver properties in the Montana/Idaho border area, all based around old silver mines in districts where the low silver prices in the 1980s led to most of those still in production then being forced to close. It is concentrating on two of these – New Departure and Conjecture, the latter being close to Coeur d’Alene in Idaho – and is working towards bringing both of these mines into production this year. The third property, Tabor, also has potential, but is very much on hold pending results from the first two mines that Black Mountain is developing and on the performance of the silver price.
What the company emphasises is that the cost of bringing these operations into production is very low – less than $10 million - and grades are extremely high offering a rapid payback. The resources the company quotes are historic – it does not have an NI 43-101 or JORC compliant resource for them which will raise some flags, but is proceeding nonetheless pointing out that developing such resource estimates on high grade vein deposits of this type requires a huge amount of drilling and can be very expensive, detracting from the overall value of what, on the current historic resources could be relatively short life operations. It also notes that the exploration work it has been doing supports the historic resource assessments. Overall the company reckons to have a total resource across the three properties of 14.5 million ounces of silver equivalent at a grade of around 600 g/ton (18.6 oz/ton)
New Departure’s life based on the historic resource would only be about 4 years, but there are already indications that this could be extended; perhaps doubled or more. It has the prospect of initially mining the extremely high grade Bonanza zone where the ore is reckoned to run at 60-80 oz/ton, which would give it a big cashflow kick, but the overall ore grade is likely to be around a quarter of this when the main ore horizon is reached.
There is, however, always a danger when working on such historic resource estimates that they don’t meet current assessment standards, but could be substantially lower – or higher for that matter. The company is also planning to assess the old mine tailings dumps with a view to blending material from these in with the ultra high grades from some of the ore shoots. Black Mountain has been working with the geologist who last assessed the New Departure resource back in the in the late 1990s.
To keep costs low, Black Mountain is using contract miners and will have the New Departure ore custom milled in one of two local mills which are said to have plenty of capacity which would keep toll milling costs low. If all goes to plan, New Departure could produce 350,000 oz silver in the current year rising to 1 million ounces next year, generating excellent cashflow.
The second project, Conjecture, in neighbouring Idaho, is considered perhaps the better of the two properties and, at the moment, the timing of first production there is uncertain, except it is likely to be in the third quarter of the current year. The uncertainty lies in whether Black Mountain will seek funds to put it in production (around $3 million only) which would probably lead to an admittedly fairly minor, dilution of its stock, or develop it out of cash flow from New Departure.
The latter would probably delay the project by one to two months, and assumes New Departure performs as expected. Conjecture also has the option of milling its own ore at the nearby Lakeview mill, also controlled by Black Mountain and which would require some minor refurbishment (maybe up to another $7-8 million) to bring up to speed. Landau talks about running a conveyor from mine to mill – a distance of about 3 km, although the company presentation suggests ore would likely be trucked there, at least in the beginning assuming it goes for the mill upgrade. Toll milling in that area also remains an option – trucking high grade ore to other mills in the area should not add significantly to costs, although the added cost of custom milling the ore depends on what kind of deal can be negotiated.
What particularly attracts Black Mountain to Conjecture is its existing infrastructure, its high grades and its unproven long term potential. It overlies the unmined Revett formation which has been a major source of silver in the nearby Coeur d’Alene district although is yet to be tested at Conjecture
The geologist who oversaw the most recent resource assessment on Conjecture is on the Black Mountain board and is a great believer in the mine. The defined resource is put at 850,000 tons at 310 g/ton containing some 8.5 million ounces of silver, but the anticipated potential is far higher – even without accessing the Revett Formation which comes in at a depth of around 6-700 m. On the historic reserves alone Conjecture would have a life of around 10 years producing silver at a rate of 700,000 oz/year.
Black Mountain is thus an interesting small silver mining play – with 2 mines operating it is looking to produce some 1.7 million ounces of silver equivalent a year at a cash cost of around $8-10 an ounce, which would give it a margin of around $12 an ounce at current silver prices – a little less if ongoing exploration costs and sustaining capital are taken into account.
It is trying to keep its capital structure tight with 86 million shares in issue and 38 million options due at A$0.2 by May 2015. 47% of the stock is held by eight major shareholders. If the silver price moves up the leverage is high, but if silver falls back from its current levels then the prospects become less certain.
What Black Mountain (which is ASX and LSE AIM listed) offers is a high risk and low cost investment option, with its longer term future very much dependent on the silver price, the delineation of new resources and whether the historic resource assessments are indeed matched by reality. Management does seem intent on keeping capital costs as low as possible which means the company would not be overburdened with debt needing to be paid off and substantially diluting early stage earnings.
Source: Reuters