For precious metal investors, indeed any mining investor, it is extremely rare to get everything you want in a mining company. They tend to be a mixture of good properties, average management or alternatively, good management, risky properties, no money, etc. There are those, however, that actually deliver on all three. And also happens to be the largest landowner in a great historic and prolific area.
Take the storied Slocan Mining District in southeastern BC, which to date has delivered $35 billion worth of precious and base metals and add management led by industry veteran and icon Richard Hughes, instrumental in the discovery of the Hemlo, Balmoral, Sleeping Giant and Beaufor mines.
His company is Klondike Silver ($KS:CA), which holds 3 active mining permits in Slocan’s Sandon Camp, owns its own mill, has data to identify additional potentially major deposits and is committed to increasing production in the area.
While the Company is not mining or milling at the moment, the plan is to ramp up to production by Q4 2014. The potential is compelling. Read on.
“Klondike Silver has been well placed to prosper in favourable silver, lead and zinc markets,” states Richard Hughes, President. “Over time, we have acquired 16,000 hectares, which is 80% of the Sandon Mining Camp. Management and other industry experts believe that as markets improve this parcel and area will return exceptional revenues from renewed production.”
Lower silver prices in mid 2013 focused the Company on exploration and development of new properties to enhance milling and production as markets firmed. On June 3rd 2014, the Company announced it has taken steps to resuming milling and production.
Klondike Silver generated revenues of approximately $2.45 million dollars from selling its concentrates in 2012. Approximately 53,620 ounces of Silver, 136 metric tons of Lead, and 253 metric tons of Zinc have been sold to Teck. Klondike Silver currently holds 3 mining permits within its Silver Slocan Mining Camp, encompassing the Silvana, Hinkley, and the Wonderful mines. Currently the focus is at the Silvana mine.
Zinc prices are expected to rise further in 2014, as the looming shortage gets closer. The current price of approximately US$2030 a tonne is 6% higher than 2013. Analysts’ forecast prices could see US$2125 this year. Global usage of refined zinc exceeded output by 60,000 tonnes in 2013. Obviously this bodes well for companies like Klondike.
Significant Zinc reserves are believed to remain throughout Klondike’s land package. Zinc was deemed worthless by the miners in the early 1900’s. Many of the silver bearing veins “zinc out” so easily accessible ore remains.
Klondike owns 150 past producing mines and is 100% owner of the Sandon Milling Complex, making it the dominant landowner.
Hughes states: “The past-producing Silvana, Wonderful, Hinckley Mines, Payne, Rambler, Van Roi/Hewitt, Vulture, Argenta, Jackson Basin, and the Carnation and several other land packages with significant mining potential are all capable of being put back into production at some level, whether it be through the exclusive efforts of Klondike or a joint effort with a partner. Currently Klondike views the Carnation land package and a potential discovery in the “Silver Mile” as its most significant asset”.
The Silver Mile encompasses the Silvana, which is permitted and a silver/lead/zinc deposit. The Wonderful, permitted and has over 30% zinc and the Hinckley, which is permitted and is a silver/lead/zinc deposit and has had additional targets recognized for surface drilling and trenching.
Silvana is the largest property and has produced over 5 million ounces of Silver, 28,691 tons of Lead, 26,299 tons of Zinc and 72 tons of cadmium from 510,964 tons mined since 1913.
In addition to the three existing mine permits, Klondike could relatively easily re-open or extend many other existing adits in order to reach more potential deposits. The Rambler Mine, for instance, with an estimated 500 meter tunnel extension is expected to intersect a continuation of a mappable high grade Silver vein (Information from Historical records). These dozen or so reactivation candidates of “Brownfield” projects hold great reserves potential.
The Sandon Mill
Richard Hughes states: “The “Sandon Mining Complex”, has the capacity to process up to 120 tons per day. The milling process produces a Silver/Lead and a Silver/Zinc concentrate, which are then transported to a Smelting Plant located in Trail, British Columbia. The Silver/Lead concentrate holds approximately 100-125 ounces of Silver per dry metric ton and the Silver/Zinc concentrate holds approximately 50-60 ounces of Silver per dry metric ton”.
Klondike may elect to increase the mill capacity to 250 tons per day with the addition of a larger ball mill. It is the company’s intention to develop many of the old silver mines within the Camp by way of cash flow generated through production and new partnerships.
Two end products are created at the Mill; a Lead Concentrate (which is on average 50% Pb and holds 105 Oz Ag per ton) and a Zinc Concentrate (which is on average 50% Zn and holds 50 Oz Ag per ton).
Example: using 4% lead, 5% zinc and 12-oz/t silver ($23 ounce silver, $0.80 lb. lead/zinc), the mill is capable of generating a net monthly profit of $340,000 with prices slightly above current spot. If we use prices of $28 per ounce for silver and $1.00 per pound for lead and zinc, the leverage is exceptional with the monthly net profit rising to $542,000.
While the potential for growth through exploration, production and milling is compelling, it is management that should impress investors. In 1981 prospectors John Larch, Don McKinnon and Richard Hughes (current CEO of KS) discovered the Hemlo mine, which turned out to be a $6-7 billion deposit. A CBC documentary said that Hemlo “[started] a staking rush not seen in Canada since the Klondike gold rush of the late 19th century,” with two companies, Golden Sceptre and Goliath Resources, securing rights to a large land package. In 2009 Barrick Gold bought out Teck-Cominco’s 50 percent stake in Hemlo for US$65 million, folding it into its production portfolio. In the first half of 2013 Hemlo produced 95,000 gold ounces, according to Barrick.
To add to Hughes’ accomplishments: although the industry average is one out of a thousand prospects ends up as a mine, his track record of success is one mine per 30-35 prospects. Needless to say, this bodes extremely well for success in the Slocan and growing value for shareholders. In mining, past successes tend to be a potential indicator of future success. And the number of years Hughes has taken to carefully amass the largest holding in the Slocan area is an extremely positive development for shareholders.
The Bottom Line
While Klondike isn’t currently milling or mining, the Company has raised funds, prices seem to be firming and production appears to be on track for Q4 2014.
This scenario actually gives investors a chance to get in prior to renewed growth, which is a unique opportunity. The property is there, the location is unquestioned, management is virtually peerless in the mining sector and the money is there to renew Klondike’s production and lucrative milling operations.
At $0.06 a share and a ridiculously low market cap of $2.1 million, Klondike appears to be one of the best potential junior mining plays on the Venture.
Bob Beaty for The Bottom Line Report
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Klondike Silver Corp.
P.O. Box 10325
430 – 609 Granville Street
Vancouver, British Columbia
Canada V7Y 1G5
Toll Free: 1-844-337-7768