It’s a bold move to float a miner in the current environment, but directors of recent AIM entrant Black Mountain (LON:BMZ ASX:BMZ) argue it’s got just what investors want now.
Executive director Peter Landau says there are a number of features that make the US–focused silver firm unique.
First, he says, it is not an exploration story but a development one with exploration upside.
Secondly, it is high grade. Two of the company’s key assets are former mines in the highly prospective mining area near the Coeur D’Alene District on the Montana/Idaho border.
At its New Departure mine in Montana, the silver grades are over 450g/t, while at Conjecture in Idaho they are over 350 g/t.
As pure silver mining grades go, this is top quartile, says Landau.
They are also old established mines so both are still fully permitted, as in the US once a mine is permitted the licence stays in place.
This is a huge plus and because of this getting the mines back into production should be relatively straightforward.
Chief executive John Ryan should know the ropes as he is a veteran of the Coeur d’Alene region and has been behind numerous mining start ups including US Silver and Western Goldfields.
Ongoing obligations such as normal health and safety operational issues have been sorted out and the group has appointed a contract miner to go into the existing infrastructure and start bringing ore out.
Black Mountain has a70 per cent stake in both projects and come December 2012, the plan is for New Departure to be processing 100 tonnes per day and Conjecture 125-150 tonnes with sales of concentrate to start in November 2012.
Landau adds both projects have very low cash costs. Conjecture is expected to produce silver in a cost range of $8-11 per ounce.
Additionally, Black Mountain recently bought a long lease option on a nearby processing mill at Lakeview and will utilise its capacity to process the ore from Conjecture.
At New Departure, the economics appear even better with costs expected between $6-8 per ounce of silver, though the most important thing on both projects is the low capital expenditure requirement, says Landau.
“People ask how can we get into production for $1-2mln. Well, these were existing mines, so you are re-entering old adits, refurbishing and targeting reserve blocks based on historic ore production.”
"It’s not re-inventing the wheel,” he said, adding that with a silver price currently of $27, margins at both projects are very good.
He says the projects would still stack up at prices as low as $12 ounce for silver, but if prices stay close to where they are now Black Mountain will be generating significant cashflow quickly.
Landau says the plan is to use that money to fund exploration in areas in the mines that have yet to be touched.
At New Departure, which has a historic non-jorc compliant resource of 2.5Mln oz at grades of 400-600 g/t, Black Mountain is targeting 1.4Mln oz over the first three years.
This will first involve refurbishing an existing adit, then going underneath to take out all of the high grade ore there.
Landau says just here there could be 260,000 ounces at 4,000 g/t.
These mining grades are “unheard of” he said and could produce $10m worth of cashflow just from mining that ore block.
More speculative and potentially more significant, he adds, is that an Induced Polarization (IP) survey recently indicated a potential parallel structure.
“We don’t know if it is silver bearing until we drill it, but we are drilling 10 holes and by September we will have a pretty good idea first if there is a parallel ore body and, second, the down dip extension of all the ore bodies.”
“As the drilling here [at New Departure] has never gone lower than 300 ft, from a potential viewpoint those ten holes we are drilling are very significant,” Landau said.
At Conjecture, the structure is different.
There is already a 600 metre shaft built by previous owner Federal Uranium with associated workings.
The geology is similar to the Coeur d’Alene region generally, where silver miners have historically produced 1.2 billion ounces.
Conjecture has a non-jorc compliant resource of 8.5Mln oz at grades above 350g/t, but has seen no meaningful activity since the seventies.
Landau points to US miner Hecla, which mines something called the revett formation in the Coeur d’Alene District.
In three of the last eight quarters, it has enjoyed negative cash costs for its silver production as lead and zinc credits have covered its mining costs.
He says the revett formation at Conjecture has never been tested.
Black Mountain wants to take out the ore down to the 200 metre level, set up underground drill stations and drill down and test the revett formation, which lies below 600 metres.
Richard Morris, the geologist who prepared the original Conjecture resource estimate in 1981 is now working for Black Mountain and he believes the revett formation could be the jewel in the crown at the mine, says Landau.
“New Departure and Conjecture are multi-faceted in terms of reserve, extensions and new ore possibilities and these things make it such an exciting project.”
Black Mountain also has a 70 per cent stake in a third project, Tabor, a gold and silver mine in Montana, which is likely to be developed in 2013 once the other two are underway.
Landau admits that Black Mountain has been a low key launch on AIM, it is also listed in Australia, but recently completed a placing that raised £1.5 mln from institutions to follow an earlier $5 mln fund raising.
“We’ll produce concentrate and let what we do speak for itself,” he adds.
Investors should not have too long to wait to judge. Exploration results from Conjecture and New Departure are due in September and first ore production will be November and December.
“Then we can begin to compare,” says Landau. “Look at the grade, grade is king added to the exploration upside. That’s why we wanted an ASX/AIM listing because it is a unique combination.”