Viscount Mining, Oversold Despite Key Near-term Catalysts

Peter Epstein |

Viscount Mining Corp. [pronounced “V-eye-Count“] (TSX-V: VML) (OTCQB: VLMGF) is a project generator with 2 Silver (“Ag”) / Gold (“Au”) projects in the western U.S., Cherry Creek in Nevada & Silver Cliff in Colorado. The Cherry Creek project covers more than 9,000 acres (3,642 hectares), and was host to > 20 past-producing Ag & Au mines. Management has entered into an exploration earn-in agreement with Summit Mining Exploration Inc., a wholly-owned U.S. subsidiary of Sumitomo Corp., one of the largest trading & investment companies in Japan. It can earn a 75% interest by producing a Bank Feasibility Study (“BFS”) and, in addition, spending a minimum of US$ 10 M on exploration & development.

Silver Cliff is comprised of 96 lode claims covering much of the prolific, past-producing mineral districts of Silver Cliff & Rosita Hills in Colorado. Management announced a blockbuster assay on December 21, 2016, confirming extremely high-grade ore. Seven more assays are pending. Drill hole K16-01 included 50 ft. (15.24 m) of mineralized core from 55 to 105 ft. (16.8 to 32.0 m) that averaged 837.4 g/t Ag (26.9 troy ounces per ton (“opt”). It twinned a similar hole at the Company’s Kate Silver Resource deposit. Importantly, a Pre-Feasibility Study (“PFS”) was completed in the mid 1980’s. [Historical data only, not NI 43-101 compliant]

Near-term catalysts are drill results on both projects, possible M&A activity and identification of a farm-out partner on Silver Cliff.

Colorado’s Silver Cliff, under-appreciated, compelling valuation

The assay for confirmation hole K16-01 at Sliver Cliff included 50 ft. (15.24 m) of mineralized core, from 55 to 105 ft. (16.8 to 32.0 m) that averaged 837.4 g/t Ag (26.9 opt). A subset of that interval, 20 ft. (6.1 m), from 60 to 80 ft. (18.3 to 24.4 m), averaged 1,778.5 g/t Ag, (57.2 opt). That’s a gold equivalent grade of ~0.80 opt Au. The collar of K16-01 is estimated to be within 4 ft. (1.2 m) of historical drill hole DDH 73-2, that assayed at 1,927.7 g/t Ag (62.0 opt) over 44.3 ft. (13.5 m). Silver Cliff is quite impressive, in addition to grade and intercept width, the deposit is near surface, potentially amenable to open-pit mining. The magnitude of historical data, while not NI 43-101 compliant, is considerable.

From this press release dated September 13, 2016,

“Drilling in the 1980s by Tenneco Minerals resulted in a historical pre-feasibility study which formed the company’s decision to put the property into production. Known historical silver grades range from below detection to a high of 2,125 g/t Ag (68 opt) over 13.4 meters. Plans were halted due to a restructuring of Tenneco after it was sold.”

On January 19th, Viscount followed blockbuster hole K1601 with 5 additional drill holes, including K16-05 that assayed 45 ft. (13.7 m) of mineralized core, from 65 to 110 ft. (19.8 to 33.5 m) averaging 390.9 g/t Ag (12.6 opt). Another hole, K16-08, returned 68 ft. (20.7 m), from 105 to 173 ft. (32.0 t0 52.7 m) averaging 228.6 g/t Ag (7.4 opt). A subset of that interval, 58 ft. (17.7 m), from 115 to 173 ft. (35.1 to 52.7 m), averaged 265.9 g/t Ag, (8.6 opt).

Regarding the newly reported assays, Chairman Kaare Foy stated,

“We are very pleased with the drill program conducted in 2016 as it has demonstrated that there is significant silver mineralization that occurs at a shallow depth between 50 ft. (15.2m) to about 175 ft. (53.3m) that may be amenable to open pit mining.”

Viscount has 40 M shares outstanding vs. an average of ~115 M among like-sized silver juniors. Peer company shares are up, on average, 580% from their respective 52-week lows. By contrast, Viscount’s share price is just 28% above its 52-week low. Viscount has vastly underperformed its peer group for no good reason, possibly offering investors a compelling entry point. Near-term catalysts are drill results on both projects, possible M&A activity and identification of a farm-out partner on Silver Cliff.

There’s a tremendous amount of exploration, development & production of silver coming out of Mexico. It might be prudent for precious metal companies closely tied to Mexico diversify into the U.S. and Canada. It’s difficult to beat Nevada and Colorado in terms of safe, prolific precious mining jurisdictions.

Of course, there are plenty of natural resource companies around the globe who could have interest in partnering on Silver Cliff. Proper funding could make it a world-class project and the timing could not be better. Having curtailed or divested exploration and development projects for years, the time is ripe for producers to take a closer look at high-grade mining projects in attractive jurisdictions.

To that end, management is in discussions with multiple parties on a number of corporate initiatives including M&A and securing a partner at Silver Cliff. My guess is that precious metal companies are watching Viscount’s progress (drill results & upcoming maiden mineral resource report) very closely. This is not an unknown district, Silver Cliff underwent substantial exploration between 1967 and 1984. Major explorers included Freeport, Hecla, Homestake & Tenneco Minerals.

Jim Ebisch, Project Manager for the 2016 drill program, had this to say about Silver Cliff,

“Even given the fact that there is a historical silver resource and PEA [it was a PFS] completed for the Silver Cliff project, we believe the region containing, and immediately surrounding the KSR is materially under-explored, and the historical resource there could be greatly enhanced with just a few strategically placed drill holes.”

From the December 21st 2016 press release, Chairman Foy commented,



The high silver values in K16-01 represent a solid starting point toward addressing our primary goal for Silver Cliff which is to confirm the historical mineral resource and then look to enlarge that resource by extending the drill program outside the perimeter of the original resource on which the PEA [it was a PFS] was done by Tenneco.”

Silver Cliff is thought to overlie a large caldera and porphyry system, which increases the prospect’s potential to host a number of precious and base metal deposits. This has been demonstrated in the mineralogy and grade historically extracted from numerous underground mining operations in the district. The Company has an exploration target of 50 million ounces of silver. However, that potential quantity is conceptual in nature as there has been insufficient exploration to define a mineral resource.

Nevada’s Cherry Creek Project: Farmed-out to Sumitomo Corp

While Cherry Creek is billed as the, “flagship” project, management owns 2 crown jewel assets. If spun off to shareholders, either would make viable, financeable standalone companies. I’m not suggesting spinoffs are on the table, just that the projects are quite compelling. Especially so, in light of Viscount’s evolving “project generator” business model, in which capital expenditures are minimized (cash burn low) due to prudent farm-outs. For example, spending on advancing Cherry Creek will be virtually zero for years to come (assuming Sumitomo sticks with the project)

Having a partner like Sumitomo, who, by the way, has no other precious metal exploration projects in North America, is as good as it gets. Cherry Creek has been de-risked by this strong vote of confidence, but ample risk remains as, in the end, it’s still an exploration project. I found it encouraging that in November the initial drill program announced in September was increased by two-thirds from 18 holes for a total of 14,336 feet (4,380 m), to 34 holes for a total of 24,000 feet (7,317 m). Initial drill results are expected in the near future. This farm-in, with a multi-billion dollar partner, is one of the best I’ve seen in the project generator space. Viscount’s carried through BFS 25% interest could be worth a fortune in a few years.

Supportive of Cherry Creek’s prospects, Mark Abrams, on Viscount’s Technical Advisory Board, stated,

“Recent soil sampling by Summit Mining at Flint Canyon has yielded gold and pathfinder element anomalies (Hg, As, Sb, Tl) similar in size and tenor to soil geochemical sampling results at other mines and advanced properties in the region, including Kinross Gold’s Bald Mountain, Newmont’s Long Canyon, Agnico-Eagle’s West Pequop and Pilot Gold’s Kinsley Mountain.”

It’s nearly impossible to overstate the significance of being free carried through a BFS. If it were to cost another US$ 20 M for all the steps leading up to and including delivery of a BFS, combined with US$ 10 M in exploration & development, that would total US$ 30 M [equal to ~C$ 40 M]. Compare that potential cumulative outlay to the Enterprise Value (“EV”) of Viscount [(~C$ 26.5 M / US$ 20 M) @ C$0.55/share]. The potential value of Cherry Creek (C$ 40 M from Sumitomo alone) more than covers Viscount’s EV. That suggests investors are effectively getting Silver Cliff for free. [Readers beware, this assumes that Sumitomo completes the 75% earn-in]

Viscount has 40.4 M shares outstanding and 59.1 M fully-diluted. All warrants & stock options are in-the-money, except 2 classes struck at C$0.70/shr. Full exercise of in-the-money warrants and options would generate C$ 3.5 M in cash proceeds.

Investors looking for a team with direct experience in the U.S., Canada, Mexico, Australia, the UK, Chile, Peru, Brazil, Japan, Ecuador, Venezuela, Boliva, the Middle East, Hondouras, Guatemala, Argentina, China, Indonesia, Uzbekistan, Brazil, Thailand, Panama, Africa and the Arctic, have come to the right place. The team’s connections across the world should serve the Company well as existing and new projects are prudently advanced along with credible farm-out partners.

Conclusion

To date, Nevada has grabbed most of the attention, but Silver Cliff in Colorado is under-appreciated, leaving it undervalued. How cheap is it? If one believes like I do that Cherry Creek is worth at least C$ 40 M, as long as Sumitomo is involved, then investors get Silver Cliff for free. Alternatively, if one ascribes zero value to Cherry Creek, (getting it for free) then the Company’s EV implies US$0.40 per ounce of Silver in the ground at Silver Cliff (based on an exploration target of 50 M ounces). US$0.40/oz. is hardly an aggressive valuation for an open-pit amenable, monster-grade, silver deposit.

Both projects have tremendous upside, as soon as this year, and beyond. Near-term catalysts are drill results on both projects, possible M&A activity and identification of a farm-out partner on Silver Cliff. Management is actively pursuing other assets to fill its project generating machine. A modest number of shares outstanding suggests the stock price could shoot higher, without impacting the investment rational for a giant like Sumitomo or a potentially well-healed (partner-to-be-named later) at Silver Cliff. Viscount is one of the best project generators (so far a silver junior) in the sector. Anyone looking to buy a basket of precious metal companies for year 1 of the Trump experiment, should seriously consider Viscount at current levels.

Disclosures:

The author, Peter Epstein, CFA, MBA owns shares in Viscount Mining, purchased in the open market. He has no prior or existing relationship with the Company.

The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research, [ER] including but not limited to, commentary, opinions, views, assumptions, reported facts, estimates, calculations, etc. is to be considered, in any way whatsoever, implicit or explicit investment advice. Further, nothing contained herein is a recommendation or solicitation to buy or sell any security. The content contained herein is not directed at any individual or group. Mr. Epstein and [ER] are not responsible, under any circumstances whatsoever, for investment actions taken by the reader. Mr. Epstein and [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Mr. Epstein and [ER] are not directly employed by any company, group, organization, party or person. Shares of Viscount Mining are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they consult with their own licensed or registered financial advisors before making investment decisions.

At the time this article was posted, Peter Epstein owned shares in Viscount Mining. Readers understand and agree that they must conduct their own research, above and beyond reading this article. While the author believes he’s diligent in screening out companies that are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. Mr. Epstein & [ER] are not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. Mr. Epstein and [ER] are not experts in any company, industry sector or investment topic.

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Companies

Symbol Name Price Change % Volume
VML:CA Viscount Mining Corp. 0.39 0.04 10.00 148,200

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