MTH now has Mexican “treasure map” to go after lost silver and gold

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,110,000 MTH Shares and 2,005,000 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.

The silver price is running and looks about to reach new decade highs...

Gold is currently on a tear - it's just hit a new all time highs AGAIN.

Last time we saw a precious metals run was in the second half of 2020.

Many may remember the post COVID rush into gold and silver stocks.

There were plenty of juniors that multi-bagged off very little news...

IF investors do start piling into precious metals stocks again, we think it could trigger a re-rate in our Investment Mithril Silver and Gold (ASX:MTH).

MTH is capped at $18M and had $5M in cash at the end of last quarter.

MTH has an existing JORC resource of 11 million ounces of silver and 373,000 oz gold - which is 529,000 ounces of gold equivalent.

MTH is currently drilling to try and double that JORC resource by Q1 2025.

MTH says assay results will be announced “over the coming weeks/months”.

Yesterday MTH added additional “blue sky exploration upside” at its project.

MTH put out the results of a Lidar survey over its ground - which effectively doubled the historic mines and workings for it to chase down as exploration targets.

Lidar (Light Detection and Ranging) is a technology that uses lasers to create detailed 3D maps of terrain by measuring how long it takes for light to bounce back from the surface.

This survey provided high resolution aerial photography and a bare-earth digital terrain model that virtually ‘hides’ the vegetation - revealing the geology beneath.

(think of it like turning on a light switch in a pitch black room you have never been in before - all is suddenly revealed and you can walk in without tripping on something)

The key takeaway for us - there is a lot more exploration upside across MTH’s project than even the company first thought.

Up until now, MTH was working with a certain set of assumptions (based on historical data).

After yesterday’s announcement those assumptions changed for the better:

MTH’s project is in the Sierra Madre trend, home to multi million ounce deposits that start small and then eventually end up as district scale 1-5 million ounce gold 50-100 million ounce silver proejcts.

The fact that MTH is finding more old workings means that people were mining high grade silver/gold structures across MTH’s project decades ago.

Before yesterday’s announcement MTH was working based on just two exploration corridors.

Now MTH is working with a theory that the high grade vein structures run across FOUR different corridors at its project.

MTH so far has only tested a small part of those areas and already has a pretty big resource.

We think yesterday’s announcement gave us a first look at how MTH can take the project to that “monster deposit” level.

It's no surprise to us that the market liked the news - MTH’s share price ended the day up ~52% on some decent volume.

We think the MTH news was well timed...

First of all, we know MTH attended the Beaver Creek Precious Metals Summit 2024 in Nevada, USA.

This was an ‘invite only’ event that saw MTH pitching to North American investors who are a lot more familiar with South American silver stocks.

MTH is the only silver explorer focused on Mexico on the ASX.

In a few weeks time it will be planning a TSX-V listing in Canada, which should give it a lot more exposure to Canadian and US investors.

Over in North America, Mexican silver is the current talk of the silver industry...

Just last week, $2.7BN First Majestic did one of the biggest silver M&A deals in recent years paying US$970M for Gatos Silver.

(Source)

Like MTH, Gatos Silver’s main asset is also in Mexico.

Of course Gatos’ assets are a lot more advanced relative to MTH, but what that deal does shows us that there is corporate interest in big silver/gold assets in Mexico.

The deal is a good reminder to the market that there is a line of sight to a re-rate for MTH if the company can multiply its resource.

There are two main reasons we think the First Majestic $970M acquisition relates to MTH -

1. Both assets are in Mexico - and MTH is the only Mexican silver/gold exposure on the ASX.

2. The background of MTH’s MD John Skeet - involved in US$1.1BN Mexican takeover

Prior to leading MTH, John Skeet was the General Manager of Projects for Bolnisi Gold.

Bolnisi Gold grew its Mexican gold-silver asset from a modest JORC resource to a ~US$1.1BN takeover in under 5 years.

A quick recap of the Bolnisi story:

• Picked up the asset in 2004,
• Drilled it out over the next ~3 years
• Upgraded the project's JORC resource several times,
• Raised tens of millions of dollars, AND
• Started constructing a mine.
• During the construction phase, Coeur Mining came in and took over the asset for US$1.1BN.

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

A 20X return in just three years.

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.

So Skeet has delivered large resource growth in a bull market for precious metals, in Mexico, and has been involved in a “top of the market” takeover for said resource...

And now, M&A is back in the spotlight in Mexico after the deal by First Majestic.

AND silver/gold prices are running...

(Source)

Our view is that if silver and gold prices continue running hard, M&A like the First Majestic deal will become bigger and more commonplace...

Exploration the key to unlocking corporate interest

MTH has already started getting interest from funds.

Back in June, the large London based Jupiter Gold and Silver Fund invested $2M into MTH at 20c per share.

They’ve been underwater since, although the MTH share price is almost getting to 20c now.

At the time that deal was done at a 29% premium to the company’s share price.

We covered that news in a previous note here: $1 Billion Jupiter Gold & Silver Fund acquires ~10% of MTH at a 29% premium to last close

For MTH to unlock further corporate interest similar to that Bolnisi takeover and the First Majestic deal, we think the company needs to deliver on the project's exploration upside.

MTH has only properly drilled out a tiny part of its project.

(which is now even tinier considering all the new targets after yesterday’s news)

A big focus for MTH over the coming years will be to demonstrate the size/scale of the opportunity, raise capital (at hopefully higher and higher levels over time), and drill out its project to really prove to the market what sort of size/scale the project can grow to.

The Bolnisi story unfolded over 4+ years...

MTH has only drilled for maybe 12-16 months at best and has already managed to bring the project to the resource it has today.

We are long term Investors in MTH and are backing the company for a minimum of 3-5+ years as it drills out its project.

Here is what we are looking for in the short term though...

MTH catalysts we are watching out for in the short-term

In the short term we think there are still a fair few catalysts that could start to build some momentum in MTH’s share price:

• 🔄 TSX-V listing (coming weeks - subject to final approval) - this should open up MTH to a new group of gold-silver investors in Canada, which we think could be well capitalised given the recent deal by First Majestic.
• 🔄 More drilling at resource and new targets (ongoing) - we want to see more drilling to expand the resource, and MTH to have a crack at one of numerous targets on its large project. Assays from the drill program could drop at any time over the coming weeks/months.
• 🔄 Double the JORC resource (Q1 2025) - this would enhance the scale of MTH’s project and make it more attractive as an investment for larger funds and increase its standing among precious metals projects around the world.

MTH’s MD John Skeet lays out what’s coming next in the following presentation at the “Beaver Creek Precious Metals Summit 2024” in the USA.

(Check out the presentation here)

We are hoping MTH is able to deliver these catalysts into a market where investors are looking for silver/gold exposure.

Hopefully with a mix of company execution and macro tailwinds the company’s valuation grows to a level we set in our Big Bet as follows:

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.

Our MTH Investment Memo

When we first Invested in MTH in May, we released our MTH Investment Memo which lays out:

The 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

How yesterday’s news relates to our MTH Investment Memo

We think yesterday’s news adds some real weight to the exploration upside of MTH’s project.

With a broader district wide understanding of the project MTH now has even more targets to drill and could eventually upgrade its resource to a size/scale that is well beyond the company’s initial targets.

MTH in yesterday’s announcement mentioned the potential for the Sierra Madre Trend to host 1-5 million ounce gold + 50-100+ million ounce silver deposits.

Right now MTH’s resource sits at 11 million oz silver and 373,000 oz gold.

(~529,000 ounces of gold equivalent)

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.

Source: “Why did we Invest?” - MTH Investment Memo 22 May 2024

What could go wrong?

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.

While exploration risk is ever-present for companies doing drilling, we see today’s news as having reduced and/or mitigated exploration risk to a degree:

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.