Discovery Silver (Toronto:DSV) (OTC:DSVSF) is a company you have to know about as a serious silver investor, asserts Peter Krauth, editor of Silver Stock Investor.
Let’s start with the superlatives. DSV owns the world’s largest undeveloped primary silver deposit, Cordero, located in Chihuahua, Mexico.
To be honest, I’ve long known of Discovery, but I didn’t pay full attention, simply because of grade. It was known as a large, lowish-grade deposit. And unless a resource is at least near 50% silver by value, then I keep digging.
Well, that’s what Discovery has been achieving as it’s taken Cordero through a lot more drilling, while focusing on higher grades. And that has been transforming the project into a resource whose silver value is closer to 60%. So it now has my full attention.
Located on the eastern edge of the Sierra Madre Occidental mountains, the project is in one of Mexico’s top porphyry and carbonate replacement deposit districts. The project has grade, scale, significant organic growth opportunities and is well located in mining-friendly Chihuahua State on a prolific silver belt.
Cordero was previously owned and operated by Levon Resources. Discovery acquired Levon in mid-2019 in an all-stock deal, becoming the new 100% owner of Cordero.
Shortly afterwards, they completed a $9M private placement, including $7.7M from Eric Sprott, then quickly began a Phase 1 35,000m diamond drilling program, which has been expanded to 55,000m, then 75,000m. Since then, multiple drill intercepts have produced high grade silver equivalent results.
Cordero’s bulk tonnage potential was first recognized by Levon, and saw 132,000m of drilling. That led to what is today the largest undeveloped primary silver deposit in the world.
Management’s plans for this project have been refocused…for profit. Their aim is to develop a mineplan that outlines a minimum 15-year mine life with average production of at least 15M AgEq ozs/yr and cash costs of around $10-11 per AgEq oz (AISC of $12-13 per AgEq oz).
After 4-5 years, the operation could be ramped up (perhaps at higher silver prices) with a parallel circuit, implying throughput going from 15,000 tpd straight to 30,000 tpd. Lower grade material would only need to be processed in later years, especially if the silver price continues to rise.
Since the project is an open pit, it can be scaled up much more quickly than an underground scenario. Lowering the silver equivalent grade cutoff brings a lot more ounces into the plan.
Discovery is part of the Oxygen Group of companies, an integrated merchant bank & mining house. They’ve built nine mining companies, five of which have been acquired, realizing $3 billion in value.
DSV’s market cap is about $800 million currently. Founders, management and board own 10%, institutions own 30%, Eric Sprott owns 25% (his largest silver explorer / developer position by dollar value), and retail investors own 35% of shares.
There are 324M shares out, and current cash is $95M. Another $40M could be infused from maturing warrants due mid 2022. About $75M could go towards construction, leaving about $225M to be funded, likely as a combination of debt and equity.
Now we can look forward to several catalysts: ongoing drill results, an updated resource estimate in Q3, followed by a revamped PEA in Q4, and a PFS in 2022. Overlapping this will be ongoing metallurgical testing and property wide drilling. There is a pipeline of other projects, all in Mexico, at varying degrees of maturity.
But Discovery’s Cordero project is the flagship, with a truly rare combination of margin, size and scalability. Its size and overall quality make for a clear Tier 1 silver asset. In my view, DSV shares could double from current levels within 12 months.
