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Silver City Minerals Ltd: THE INVESTMENT CASE

Silver City Minerals fancied by Breakaway as it chases IOCG deposit at Broken Hill

The prospect of an IOCG deposit, similar to Olympic Dam, has ignited interest in the stock.
map of project area
The company’s shares rallied 10% on Monday morning despite negative market sentiment

Silver City Minerals Ltd (ASX:SCI) has commenced the third round of drilling at its Copper Blow Project in the Broken Hill region of New South Wales.

The company had been focused on exploring for traditional Broken Hill style lead/zinc ore bodies but has been particularly successful on the copper front.

That is no doubt behind the response to the recommencement of drilling, as the company’s shares rallied 10% on Monday morning in the face of negative market sentiment.

READ: Silver City Minerals commences drilling to test copper-gold extensions

What has sparked increasing interest in Silver City is the fact that drilling results indicated characteristics of an IOCG (iron oxide copper-gold) deposit, similar to Olympic Dam.

Hence, the company is very much a ‘watch this space’ story as the latest round of drilling looks to confirm that the company is on to what could be a game-changing find.

Broker backs the story

In tandem with the recommencement of drilling was a positive report from Stephen Bartrop, analyst at Breakaway Research.

It is worth noting that he has been ahead of the game with this company since initiating coverage in August 2017.

At that stage, Silver City’s share price was 2.6 cents.

However, he was buoyed by early-stage drilling, indicating the company had identified extensive copper mineralisation.

Bartrop’s believers doubled their money

It took a couple of months, but investors who followed his advice watched the company’s share price more than double.

While it retraced between drilling campaigns as newsflow dried up, this may change in the near-term.

So the question is, will we see a similar scenario play out in the coming months?

Let’s look at what Bartrop has to say a little later.

First IOCG in New South Wales

The Copper Blow project, 20 kilometres south of Broken Hill, is shaping up to be the first IOCG (iron oxide copper gold) deposit discovered in NSW.

This style of deposit is host to many large copper-gold deposits elsewhere in Australia and globally.

Silver City’s first drilling program at Copper Blow intersected high-grade copper-gold and highlighted the potential at depth and along strike.

Geophysical and geochemical surveys have shown Copper Blow is part of a 6-kilometre long zone featuring several targets ready for drilling.

Cobalt could be the blue sky

The presence of significant cobalt values both with copper mineralisation and as cobalt only mineralisation has emerged from Silver City’s exploration results.

While this has the market excited, it is arguably the confirmation of an IOCG that could trigger a substantial re-rating.

However, by-product cobalt deposits have the capacity to make a potential project more economical.

The identification of substantial volumes of cobalt mineralisation could support a standalone operation at a time when the commodity price appears to have no bounds.

Thackaringa demonstrates cobalt fever

It is worth noting that the Thackaringa Cobalt Project, which has recently been the subject of a substantial resource upgrade, is a similar distance from Broken Hill as Copper Blow.

Both Cobalt Blue Holdings (ASX:COB) and Broken Hill Prospecting (ASX:BPL) have an interest in Thackaringa.

The share prices of both companies have increased seven-fold in the last six months, driven by a burgeoning cobalt price and proof that the Thackaringa project is the real thing.

4,000 metres of drilling

As important as it may be to Silver City’s future, cobalt is the blue sky at this stage and the focus needs to be on the potential to identify an IOCG.

Management’s near-term aim is to gain an understanding of the mineralisation, but also define a mineral resource.

The latter in itself would be an important development as it provides both the company and potential investors with some material metrics to assess its potential.

Early stage targets

A priority target will be a previously delineated thick 41.2-metre intersection with grades of 1.3% copper and 0.4 g/t gold.

There are a number of reasons why management views this particular target as highly prospective.

The drill hole indicated that copper-gold mineralisation was persistent from the surface to depths of at least 200 metres.

It also indicated that the mineralisation was open in all directions down-dip and along strike, and that the grade and thickness increased at depth.

This style of mineralisation suggests it may be amenable to extraction by open pit mining methods.

Bartrop has the last word

In weighing up what lies ahead over the next few months, Bartrop is fairly confident, and he has a speculative buy recommendation on the stock.

“The broad intersection reported in the north zone (41.2 metres) is highly encouraging as it suggests increasing widths of higher grade mineralisation with depth.

“Testing whether the higher-grade zone does in fact increase in width as the mineralisation gets deeper will be an exciting aspect of the forthcoming drilling.

“Further, while exploration has focused on the southern end of the 4-kilometre magnetic trend, there is no reason why the rest of the belt should not be as prospective below the surface as the southern portion.”

Existing infrastructure improves economics

Bartrop is of the view that drilling results have already confirmed that Copper Blow represents an economic proposition under a development scenario involving open pit mining, ore hauling to Broken Hill and toll treating through either the CBH Resources or Perilya plants.

Indeed, both plants are underutilised, and treating additional ore would improve unit costs despite potential modifications.

With CBH Resources being a 25% joint venture partner in the Copper Blow project, such an arrangement could be more easily facilitated.

However, continued drilling could establish a resource that can support its own processing plant on site in the future.

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