MTH: How to find a giant, high grade silver and gold system

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,288,336 MTH Shares and 2,177,000 MTH 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. This information is general in nature about a speculative investment and does not constitute personal advice. It does not consider your objectives, financial situation, or needs.

Mithril Silver and Gold (ASX:MTH) has two drill rigs running at its giant “district scale” high grade silver and gold project...

In the prolific Sierra Madre Gold-Silver Belt in Mexico.

MTH’s land area is enormous (70 square kilometers), and it’s dotted with hundreds of historical mines, surface workings and pits.

MTH’s theory is that it could all be part of one giant, high grade silver and gold system... yes, kind of like an elephant.

... but on a land area so big it's going to take some drilling to properly define.

(40% of MTH shares are now held by global institutions, so it's got the right kind of long term backing to see this through).

According to a recent interview with MTH MD John Skeet and Technical Advisor Colin Jones, we will know the answer within the next 14 months. (source)

And according to John, “The worst case scenario is 2.5M ounces of gold equivalent”. (source)

(MTH held $18.3M cash at the end of last quarter so is well funded to do this work, and has said its fully funded to complete 45,000m of drilling. A third drill rig is arriving early next year to expedite all this elephant consumption.)

Mapping and sampling has defined continuous mineralisation stretching 9km across the southern half of the project, and 1,300m vertically.

To start “eating the elephant”, MTH split its giant 70km2 project area into 13 “Target Areas” to progressively prioritise and drill test:

(Source)

The little orange and black dots inside each Target Area are historical mines, adits and pits - that red line we drew shows 2km distance.

To date, only 5% of the mapped project area has been drilled - and with that data, MTH has already defined a 373k ounce gold, 11M ounces of silver JORC resource estimate for the project.

(which is 529k ounces of gold equivalent - the first few “bites of the elephant”)

Ultimately MTH is focused on identifying the major feeder system driving the gold-silver mineralisation across multiple deposits within the district.

With such a large project area to work through it will take a lot of “bites”...

... and to mix our metaphors here, the progress of MTH’s drilling program is reminding us of one of those early 2000s techno songs with an excruciatingly long build up before it aggressively kicks in and everyone can finally start jumping around after sort of just standing there trying to figure out what to do with their hands while waiting.

MTH’s current drilling has focused on Target Area 1 (to extend the existing JORC resource at this Target Area) and Target Area 5:

(Source)

Right now MTH is drilling with two rigs and is expecting to have a third on site in early 2026.

(this should make the techno song build faster... and allow faster, in-parallel biting of the elephant)

A few weeks ago, MTH hit 8.03m @ 7.19g/t gold and 7.2m @ 2.78g/t gold in holes ~300m to the west of its current JORC resource at Target Area 1.

Today, MTH confirmed that drilling for western extensions at Target 1 was going as far as ~900m to the west toward an old mine shaft (the El Gallo mine).

So the current JORC resource at Target Area 1 could get bigger to the west.

(Source)

Today, MTH also announced the first batch of drill results from Target Area 5 - the most silver rich section of its project.

13 holes have been drilled across Target 5 so far - 8 assays have been reported, hitting intercepts like 2.75 m at 660 g/t silver equivalent (2.28 g/t gold, 500 g/t silver) from 93.6m...

Including 1m at 1,714 g/t silver equivalent...

And MTH starts drilling one of the historic mine shafts (the Tasolera Mine) this week where channel sampling returned ~ 3,440 g/t silver equivalent (2.0 g/t gold, 3,300 g/t silver) over 1.4m...

With MTH’s project, the goal is to find lots of high grade veins of silver and gold - where it's less about the thickness of intercepts and more about how high the grades are.

This is typical of the silver mines in Mexico in this region.

As long as the veins are continuous enough and high enough grade they can be potentially economic to mine...

Like some of the mine shafts we saw when we were on the MTH site earlier this year:

MTH’s current JORC resource estimate has an average grade of ~6.81 g/t gold equivalent. (source)

And today's results from Target Area 5 had some very decent hits - grades up to 5.8g/t gold and 1,308g/t silver.

Now we wait to see what the rest of the drilling on Target 5 finds and for a third rig to get on site at Target 3.

Target 3 is still living rent-free in our heads after our site visit, because it was where the locals had been saying there was a notoriously high grade old mine shaft...

That spanned multiple levels... (source)

If it was of high enough grade to warrant multi level mine shafts back then...

It's definitely a target we are looking forward to seeing MTH drill now...

Remember MTH expects to have a rig on site at target 3 in “early 2026” - not far away now.

We watched an interview recently with MTH’s MD John Skeet and Technical Advisor Colin Jones where they discuss the different targets on the project and what to expect over the coming months.

In the interview, MD John compares MTH’s project from a district scale perspective to that of Palmarejo, where there was “4.5M ounces of gold and 270 million ounces of silver”

(Palmarejo was the asset John previously worked on which got taken over for US$1.1BN - see our deep dive on that here)

And then at 13:41 in that same interview, Colin says “I’d be very disappointed if we were sitting here next year and we don't have the whole epithermal field interpreted accurately”.

MTH has so far only drilled a tiny fraction of the project, with the current resource only covering ~5% of the project area.

So there should be a fair bit of exploration newsflow to come from MTH over the next 12 months.

Check out the full interview here where they also cover:

• MTH’s (now $18.3M) cash balance and an expanded geological team of 8 on site.
• Building the groundwork: LiDAR, mapping, sampling, and mag surveys across a 70 km2 district.
• Drilling updates: Target 5 underway, Target 3 about to start, both potentially larger than bonanza-grade Target 1.
• District-scale perspective: multiple mineralised trends over 10 km, with gold-rich higher elevations and silver-rich lower zones.
• Comparisons to Palmarejo and Vizsla Silver and why Copper Queen could redraw the map.
• Discovery curve timing: why the next 12 months could deliver a breakthrough.

What could MTH look like in 14 months time?

As mentioned earlier...

MTH is aiming to grow its current resource estimate to ~2.5-3M ounces gold equivalent over the next 12-14 months:

(Source)

IF MTH can get its resources up to those levels we think the market could start to draw comparisons between MTH and another Mexican silver stock listed in Canada - $2BN capped Vizsla silver.

Vizsla is a single asset developer and its project has an 4.4M ounce gold equivalent resource estimate (measured/indicated and inferred). (Source)

Vizsla’s project is ~200km to the south of MTH’s - also in the Sierra Madre Gold-Silver Trend in Mexico.

MTH’s project currently has a ~0.53M ounce gold equivalent resource.

IF MTH can get it up to that ~2.5-3Moz gold equivalent resource range (or with some exploration luck even higher).

Then it could start to look like “another Vizsla”.

MTH’s current market cap is ~$93M with $18.3M cash in the bank (as of Sept 30th).

So there is room for MTH to re-rate higher as long as the drilling delivers meaningful upgrades to the project’s overall resource base.

We recently watched another really good ~90 minute interview with John on the Resources Talks Youtube channel.

John gave an overview on his background, the company’s capital structure and what MTH’s exploration plans are for the next ~12-18 months.

And again he reiterated at the ~7:34 mark that “the worst case scenario is maybe 2 and a half million ounces gold equivalent”.

And that his objective is to reach “critical mass for the district of two to three million ounces”.

Watch the full interview here: Is 3 Moz of Gold Really Enough in Mexico? | Mithril Silver and Gold CEO Interview

Ultimately, we are Invested in MTH to grow its silver and gold resource by extending the current resource at Target Area 1, and with new discoveries at MTH’s other Target Areas.

All we need over the next 12-14 months is for silver and gold prices to stay where they are (and even better go higher), and for MTH to deliver with the drill rig.

What’s next for MTH

Over the coming months we will have some big catalysts to look forward to:

🔄 Additional assays (Target 1)

We are especially looking forward to seeing the results from the drilling MTH is doing to the west of its existing resource.

Any hint of high grade silver/gold hits from those extensional holes could add to MTH’s eventual resource upgrade in a big way.

🔲 Double the existing JORC resource

We want to see MTH get close to a doubling of its current JORC resource estimate.

This should come once MTH has officially declared a cut-off for its drilling at Target 1.

🔄 Drilling assays (Target 5)

We want to see results from the rest of the drilling ongoing at Target 5.

🔲 Drilling to start at Target 3

Next we want to see drilling get underway at Target 3.

What are the risks?

With drilling currently underway and more assay results to be published over the coming months, we think the key risk in the short term for MTH is “Exploration Risk”.

It’s possible that MTH is unable to find enough significant economic mineralisation, which we would expect to impact MTH’s share price negatively.

Exploration risk

There is no guarantee that MTH’s upcoming drill programs in Mexico are successful and MTH may fail to find economic silver-gold deposits.

Source: “What could go wrong” - MTH Investment Memo 22 May 2024

We list more risks to our MTH Investment Thesis in our Investment Memo here, and some more below.

Other risks?

Currently, MTH is in the exploration phase, with plans to eventually extract its resources through underground mining.

However, this method can be costly, and there are currently no economic feasibility studies to determine if MTH's resources can be mined profitably.

Operating in a remote region of Mexico introduces infrastructure challenges, potentially complicating logistics and making the project more expensive to develop.

Additionally, MTH is in a pre-revenue stage, relying heavily on capital raises for further exploration. This dependency presents a dilution risk to current shareholders.

There are also permitting and regulatory considerations.

Changes in Mexican mining laws or permitting delays could adversely affect the project.

Furthermore, political risks exist, as shifts in government policies in Mexico could impact the mining industry.

Our MTH Investment Memo

You can read our MTH Investment Memo in the link below.

We use this memo to track the progress of all our Investments over time.

Our MTH Investment Memo covers:

• What does MTH do?
• 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