MTH: Drilling Commences as Silver Price Tests Decade Highs.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,790,000 MTH shares and 1,895,000 options at the time of publishing this article. The Company has been engaged by MTH to share our commentary on the progress of our Investment in MTH over time.

The silver price keeps threatening a breakout above its decade highs...

Testing US$32 per ounce again overnight and this morning.

Gold is also rallying - currently trading at all time highs...

The perfect backdrop for our new Investment ~$18M capped Mithril Resources (ASX:MTH) to announce that it has started drilling for silver (and gold)...

And can hopefully deliver some more ultra high grade hits like the ones that saw it trading at $110M market cap back in 2021.

(back when nobody even cared about silver, unlike now)

MTH’s project sits in the “Sierra Madre Trend” in Mexico - home to ~10% of the world’s historic silver production and some of the biggest silver/gold producers in the world.

Some of those in the region are Fresnillo capped at ~$8.9B, Pan American Silver capped at ~$12.2B and Coeur Mining capped at $3.4BN.

MTH already has a JORC resource 40M ounces of silver equivalent.

(~11Moz of silver PLUS 373koz of gold).

This morning MTH announced it is commencing a 4,000m drill program on its project...

Meaning over the coming weeks and months we should start seeing drill results.

If silver (and gold) keep running we think the market will reward positive drilling updates.

(A few weeks ago, ASX listed company ‘Australian Gold and Copper’ hit a ~3,000g/t silver intercept. The drill results took its share price up by ~400% to a market cap of ~$90M. )

Especially if the results are anything like what we’ve already seen from MTH between 2021-2022

Back in 2021, MTH delivered a global top 10 intercept...when the market wasn’t interested in gold and silver.

Back then, MTH hit intercepts with silver grades of ~3,129g/t and gold grades of ~34.72g/t.

MTH traded at as high as $110M off the back of its drilling results and 40M ounces silver equivalent JORC resource.

At the time, silver and gold weren't in favour.

Now silver prices are at decade highs, and gold is at all-time highs...

Today MTH is capped at ~$18M.

But... the silver price is moving up, and the market is rewarding silver explorers that deliver solid results.

(results like what we hope to see from MTH over the next couple of months...)

Silver price run continues:

The 12 months silver price chart below shows silver hit US $32 a few weeks ago, came off a bit then popped back up to ~$32 where it has been happily trading for a few days now - we want to see it close above this $32 level and hopefully keep going.

Silver price chart over 25 years:

Zooming out to the 25 year silver price, the silver price run in during 2024 is clear - question is where the price will settle over the next few years?

Silver price moving up? The market is rewarding silver intercepts:

Again, a few weeks ago, ASX listed company ‘Australian Gold and Copper’ hit a ~3,000g/t silver intercept.

The drill results took its share price up by ~400% to a market cap of ~$90M.

The past performance is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Looking back at MTH’s intercepts from 2020-2021, the company hit grades higher than Australian Gold and Copper...

The difference was the macro sentiment for precious metals back then was poor.

We think the market may react very differently if MTH can replicate some of these high-grade hits from a few years ago.

Below is one intercept (albeit a thin one) where MTH hit 6,680g/t silver and 837/gt gold:

(Source)

The drill program and what we want to see

First some context - MTH picked up its project in mid-2020 and by November 2021 it had defined a maiden JORC resource.

The drilling at the time was focused on one small part of its project.

Before MTH could drill again for extensions/additional discoveries, macro sentiment changed, and MTH went into cash preservation mode.

Which meant that there were lots of potential targets for MTH to drill that were left untested.

Now that MTH has managed to lock away a capital raise and sentiment for gold and silver has turned positive again, MTH has commenced a 4,000m drill program to uncover what was left behind for all those years...

MTH is drilling in two key areas:

1. Drilling in and around the JORC resource - here MTH will be looking to confirm what they already have and drill down at depths to extend the existing JORC resource. Ultimately, MTH’s goal is to double its current 373k ounce gold & 10.9M ounce silver JORC resource).

2. Following up the high grade hits from 2020 and 2021 - MTH will be following up the high grade hits from previous holes where grades were as high as ~80.3g/t gold and 3,129g/t silver. These could get the market interested if MTH can get similar results...

3. Drilling across other prospects chasing new discoveries - This is more exploration based drilling, and drill targets will become more clear as geophysics data from a recent LiDAR survey is interpreted.

The main target for this round of drilling is to extend the existing JORC resource.

Anything more, including new discoveries will be an unexpected surprise for us.

MTH confirmed again today that the target is to double the existing resource by the end of this year.

Following the Bolnisi Playbook to a monster gold-silver discovery

MTH is looking to follow in the footsteps of Bolnisi Gold which took a gold-silver project in Mexico from drilling into development and eventually a ~US$1.1BN takeover.

In 2004, Bolnisi acquired the Palmarejo Project in Mexico.

Between 2004 and 2007, Bolnisi and its joint venture partner drilled out the project, uncovered strong gold and silver hits, raised tens of millions of dollars, upgraded the project resources AND started construction on a mine.

Then, during the construction phase, Coeur Mining came in and took over the asset for US$1.1BN.

In just a few years, Bolnisi share price went up from ~A$0.16 to ~A$3.27.

A 20x return in just three years.

Past performance should not be used as a measure of future performance. Just because the Bolnisi Gold share price appreciated over this time there is no guarantee that MTH will.

Well, where does MTH fit into all of this?

MTH’s CEO John Skeet was the General Manager of Projects for Bolnisi Gold during the takeover.

Skeet was involved with Bolnisi from 1997 all the way through to that US$1.1B Coeur Mining deal.

Skeet also took another project in Mexico, Cerro Resources’ through to a takeover by Primero Mining.

We are hoping that he makes it three from three with developing Mexican assets through to a lucrative takeover bid.

Most important to the story is that Skeet is behind the company that bought MTH’s core project, Copalquin - the one that it is drilling right now.

He was the founder of Sun Minerals in 2017 which was vended into MTH back in 2020.

Given his two previous successes in Mexico and the time spent at Bolnisi we are backing Skeet to find prospective ground in Mexico, and the ability to execute on an exploration and development strategy.

And there is a nearology aspect to the story too...

MTH’s asset is in the same regional district as the Bolnisi asset (along with many other gold and silver mines):

We especially like that MTH’s asset is relatively close to Bolnisi’s asset - again, an area that John should know really well...

We are hoping MTH has similar drilling success to Bolnisi and over the next three years and Skeet helps to develop MTH’s project through to a stage where it is ready for feasibility studies.

This brings us to our Big Bet for MTH:

Our MTH Big Bet:

“MTH re-rates to a $150M market cap by expanding its Mexican gold-silver resource with new ultra high-grade silver (and gold) drill hits, taking the project into development and/or attracting a takeover bid at multiples of our Initial Entry Price”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our MTH Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

REMINDER: Why we Invested in MTH

Last week we announced our Investment in MTH and published our MTH Investment Memo.

As always, with our Investment Memo, we publish our Investment Thesis for the company and our Key Reasons for the Investment.

As reminder, here are the 10 key reasons why we Invested in MTH at the recent 10c re-cap raise:

1. MTH was capped at >$110M in 2020 and now recapped at $8.4M - Back in 2020 off the back of ultra high grade silver/gold intercepts, MTH’s market cap re-rated to above $110M. We made our Investment in MTH in the recap round at a market cap of $8.4M. With some drilling we hope it can re-rate back to those levels again.
2. High grade gold/silver JORC resource - MTH has a JORC resource with 373k ounces gold and ~11m ounces of silver. The gold grade for the resource is 4.8g/t and silver grades at 141g/t silver. Both extremely high relative to other gold/silver projects in the market.
3. Drill rig already on site - MTH has a drill rig on site ready to go and so we should see a lot of newsflow over the next coming months. We are hoping the drilling leads to a material increase in the company’s JORC resource.
4. Potential to double resource - MTH has previously indicated it thinks the project has the potential for a “multi-million ounce gold and silver” deposit. Looking at some of the drill and rock chip results along the east-west trend, we think there is potential to quickly double the existing resource.
5. CEO & MD John Skeet has “been there and done that” (billion $ take over) - John Skeet was GM of projects for Bolnisi Gold from 1997 through to a US$1.1BN deal for its Palmarejo project in Mexico. The takeover was done by the current 7th largest silver company by revenue, New York listed Coeur Mining in 2006. Bolnisi picked up that project in 2004, drilled it out, upgraded its resource and eventually sold it to Coeur 2006. We are hoping Skeet is able to repeat that success with MTH.
6. Silver price is hitting decade highs - Silver demand is increasing because of demand from the solar panel manufacturing industry. Silver production on the other hand is falling. As a result, prices are looking to breakout into decade highs.
7. Gold price is at ALL time highs - gold prices are currently trading at all time highs against almost every currency. MTH’s project also has exposure to gold with the current resource containing ~373k ounces of gold.
8. Mexico top silver and gold producer (and this is in a mature mining area) - Mexico is the largest silver producer in the world, and the 7th largest gold producer. MTH’s project sits in Durango state along the “Sierra Madre Trend” which has produced as much as 6.2 billion ounces of silver - equal to roughly 10% of total global historical production. There are major gold-silver mines throughout the trend, home to multiple large precious metals mining companies.
9. MTH drilled one of the ASX’s best gold hits in 2021 - In July 2021 MTH delivered a gold-silver hit of 8.26m @ 80.3 g/t gold, 705 g/t silver from 468.34m. This was one of the ASX’s top 10 best gold hits of 2021, and drilling will be taking place around this area of the project imminently, a drill rig is on site and ready to go.
10. Low enterprise value relative to JORC resource - MTH currently trades at an EV per silver equivalent ounce valuation of 27c compared to its TSX and ASX peers which trade in a range of 35c to $1.98 per silver equivalent ounce. Based on the other Mexican high grade exploration/development peer group Mithril's shares could increase 2-4X based on its current resource alone (not including any resource upside potential).

For a full breakdown of our initiating note read: Our new Portfolio addition: Mithril Resources (ASX: MTH).

What’s next for MTH?

🔄 Drill results from 4,000m program

With drilling about to start we are hoping MTH can replicate the high grade hits from 2020 and 2021.

If MTH can put out the silver grades in the thousands of grams per tonne or gold grades in the high teens we think the market could react by re-rating MTH’s share price higher.

The focus for the first round of drilling will be on the area where MTH already has a JORC resource so we are hopeful the drill results come in strong.

🔲 Exploration Drilling Targets Identified

MTH recently did some LiDAR and Magnetic surveying on its project.

The goal of that program was to rank new drill targets across its project.

We are also looking forward to these results, primarily because these could help MTH deliver new discoveries ontop of the area where its existing JORC resource sits.

What are the risks?

Exploration Risk

With drilling about to start, the key risk in the short term is “exploration risk”.

There is always a risk that MTH fails to deliver any intercepts of interest.

Given MTH will be targeting areas where there is already an existing JORC resource any results below the ones that form the existing JORC resource could lead to a re-rate lower in MTH’s share price.

Commodity Price Risk

both gold and silver are of interest to the market right now.

If the price of gold or silver cools, investor interest in the MTH project may wane as investors look to chase the next hot commodity.

We list more risks to our MTH Investment Thesis in our Investment Memo here.

Our MTH Investment Memo:

In our MTH Investment Memo, you can find the following:

• What MTH does
• The macro theme for MTH
• Our MTH Big Bet
• What we want to see MTH achieve
• Why we are Invested in MTH
• The key risks to our Investment Thesis
• Our Investment Plan