Monday, October 25, 2010

Silver Mines Limited (SVL) - Resource Upgrade

It's an exciting time for Silver and related stocks as the price of Silver has risen strongly over the past couple of months. A little over a month ago I suggested Silver was heading into a parabolic spike and it looks very much to be doing just that. It hit an intraday peak of US$24.90 an ounce just 10 days ago, then corrected 8.5% to an intraday low of $22.78 and currently sits a little higher closing on Friday at $23.25. Where to from here? I think we are still only part way into the spike and that soon Silver will regain it's legs and continue to climb....sharply. I am still confident that my short term target of $28 to $31 (or higher) will be met (likely before the end of the year).

The share price of Silver Mines Limited (SVL) has risen dramatically since August 16th when it released an announcement titled:

Further High Grade Silver at Webb`s up to 100 oz/tonne

The announcement included the below drilling results (highlights):
RC097 – 4m @ 823 g/t silver from 90m (incl. 1m @ 2095 g/t Ag)
RC098 – 24m @ 316 g/t silver from 84m (incl. 1m @ 1600 g/t Ag)
RC100 – 11m @ 635 g/t silver from 74m (inlc. 1m @ 3008g/t Ag)

The day prior to this announcement SVL closed at 10c, Friday October 22nd (a little over 2 months later) SVL closed at 28.5c, a 185% rise in share price. The share price appreciation has been driven predominantly by exceptional drilling result, a rise in the price of Silver as well as the expectation for a resource upgrade that has been expected for some time now.

The resource/model update has been in the works since late 2009, in April 2010 the company announced they were expecting it to be released within days, however impressive new drilling results prompted them to hold off so that they could include these in an updated model and upgrade. SVL went into a trading halt this Thursday just been with the news that the resource upgrade would be announced to the market on or before Monday.

Today we saw the results of this upgrade:

10.19m oz of Silver (121% increase over previous resource of 4.6m oz)
Increase in the grade of resource from 200g/t to 256g/t (28% increase)

Further to the above results the announcement indicated that drilling will recommence shortly which they expect will further add to this resource.

SVLs resource is 3.25x the grade of AYNs Silver resource (79g/t) and 2.65x the grade of CCUs Silver reserve (97g/t). So while both of these other companies have a larger quantity of Silver, if SVL makes it to production, they should have lower costs per ounce to mine given the higher grade per ton.

I have been over some of this information in a previous blog which briefly covered the 3 pure Silver plays listed on the ASX, but thought it was worth rehashing for the sake of any new readers and with the updated resource.

Share price: 28.5c (as of close 20/10/2010)
Number of shares: 94m
Number of options: 30m (12c, May 2011)
Market cap (undiluted): $26.8m
Cash: $1.8m + $472k = $2.27m (placement/end of June Qtr)
Options conversion will provide another $3.6m in cash by May 2011
Silver resource: 10.19m Oz
Market Cap / Resource = $2.63 p/oz

Silver Mines listed on the ASX in January 2007 with the purpose of exploring several tenements in the New England region of north-eastern New South Wales. The tenements are all considered prospective for silver and to a lesser extent gold and base metals. Their tenements consist of over 1,300 km2 of prospective ground in an under explored province. Webb’s Silver has a history of mine production over 1885-1901 and 1962-1965, the mine produced about 40,000t @ 700g/t Ag.

13,000m worth of drilling to date has been completed at the Webb’s project with another 4000m planned by years end.

While the Webb's Silver project is clearly SVL's most prospective tenement, they do have others with potential, but these have been placed on care and maintenance until they have appropriate financing to explore further.

Mole River (ELs 6114, 6512 and 6771)
NW of Tenterfield, NSW. Silver, gold and base metals. 295 sq km. Encouraging sampling results included; up to 552 g/t Ag, 5.39 % Pb, 1.47 % Zn & 0.5 % Cu (30 July 2007 Activities Report).

Booroowah JV (EL6269)Booroowah, Sth Central NSW. Contains the historic Wallah Wallah Silver-Lead-Zinc mine. Located in the Lachlan Fold Belt. SVL can earn 50% by spending $95k in a joint venture with Australian Oriental Minerals (ASX.AOM) - SVL has already spent approximately $60k.

Tasmania (EL 20/2008)
15 square kilometres in Western Tasmania southwest of the Rosebery mine. The area was previously held by Zinifex Australia Limited and lies within the most mineralised sector of the Mount Read Volcanics Belt, which hosts three of Tasmania's six world class ore bodies. The tenement contains 28 known mineralised sites, mostly described as prospects or historic workings including Devonian copper, copper-gold and lead-zinc-silver vein systems.


Disclosure: Position held in SVL. Not investment advice. Do your own research.

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