Silver Bull Wins the Silver Lottery
Silver Bull (SVB-T) has made a major change in direction and it seems to be paying off. I wrote about them in November when the price seemed stuck in molasses. SVB has a giant 43-101 resource in silver, lead and zinc. Mostly it is an oxide resource that the market doesn’t like due to the environmental issues. The price of silver hasn’t done much in this time frame. It was about $17 an ounce then and about $16.50 now but with increased visibility the price of Silver Bull has doubled.
The company certainly delivered good news to the market in their effort to move from the nasty oxide material into the more desired sulfide ore. In January they reported 9 meters of 20.7% zinc with 98 g/t Ag and 1% Pb and 16 meters of 396 g/t Ag with 1.61% Cu in channel samples of a new 350 meter unexplored zone. They followed up with a February 21 news release of assays from seven drill holes underground with one showing 6 meters of 802 g/t Ag with 5.87% zinc and 3.3% copper. Another hole generated 2 meters of 1,300 g/t silver with 13.52% zinc, 3.87% copper and 2.95% lead.
Silver Bull has certainly shown a remarkable ability to deliver money holes. Another press release coming out in March showed the bonanza results from the last three holes of the current drill program including 10 meters of 347 g/t silver, 20.7% zinc with 1.25% copper and 1.35% lead. With today’s prices that rock would be worth $969 in the ground.
On the 4th of June Silver Bull hit the lottery when they announced an option deal with South32 Limited of Australia and London. The option gives South32 the right to invest $100 million into Silver Bull in return for 70% of the company’s primary project in Mexico. The deal would consist of two parts, $10 million in exploration spread over a four-year period and a $90 million injection upon exercise of the option if the $10 million has been spent.
It’s a great deal for both companies. By defining the value of 70% of the project at $100 million, it implies a value today of $42 million for the remaining 30%. Since at today’s share price, the total market cap of SVB is only $38 million it puts an effective floor under the stock at about $.21. Better yet, the requirement that South32 fund $10 million over a four year period means Silver Bull need not further dilute their shares. The $10 million would be spread out with $3 million in each of year one and two and $2 million in each of year three and four.
On the part of South32, they get an option good for four years on a 100 million ounce silver project for $10 million in exploration and should the prices of silver, lead and zinc go up, the right to buy 70% of a giant project for a total of $100 million. It’s an agreement good for each party.
Clearly investors don’t get it or there would be a reaction in the marketplace and there hasn’t been. The chance to get $10 million in essentially free money for exploration is wonderful so the company doesn’t need to raise money in the depth of a weak market. Setting a firm floor on the share price is even better.
Silver Bull has hit the jackpot with this arrangement. They have set a floor under their share price but not a lid. And who knows, silver, lead and zinc might go up someday. The downside is limited but not the upside.
Silver Bull is an advertiser and I own shares. Naturally that makes me biased and only you share in your profit so you need to take responsibility for your own due diligence.
Silver Bull Resources