MTH: Second rig. New target. Drilling started. Gold price at new record.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,168,000 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.

MTH has just announced a second drill rig has started drilling into a new never before tested gold and silver target...

Just as the gold price soared to yet another brand new ALL TIME high (ever) of US$3,200/oz just as we pressed send on this email.

If “Target 2” is anything like “Target 1”, it could be a big couple of months for our gold and silver Investment Mithril Silver and Gold (ASX:MTH).

But there’s more than just two targets. MTH is exploring an entire 70 km2 mining district, with at least another 10 more targets still to drill.

100 historic underground gold-silver mines and workings plus 198 surface workings/pits give MTH a lot of clues as to where to drill next.

As of today, for the first time ever, MTH is drilling new regional targets - chasing new discoveries.

A new discovery could lead to step-change increases in MTH’s gold and silver resource base.

We’ve been eagerly waiting for this new phase of drilling as we think this is where MTH’s blue sky exploration upside could be triggered for the company.

MTH already has a 373Koz of gold and 11Moz of silver JORC resource - 529,000 ounces of gold equivalent.

A JORC resource upgrade on (just) Target 1 is due late May.

Now MTH has just brought on a second drill rig to tackle Target 2 - and the early channel sampling results are looking very promising with high grade gold and silver.

All up, MTH is fully funded for 35 kilometres (yes, kilometres) of drilling in 2025...

If MTH can build a multi-million ounce gold equivalent JORC resource as the gold price keeps going up, we think they could become an attractive take over target for a cashed up gold major.

(of course a lot of things will need to go right for this scenario to play out, MTH is still a high risk small cap stock)

The company is now set up to deliver two major potential share price catalysts inside the next 3 - 6 months:

1. From Target 1, MTH will release more drill results and a JORC resource upgrade in the coming weeks.
2. MTH could also deliver a potential new discovery at another regional target - which could lead to a step change in MTH’s total resource.

To date, MTH has drilled out only a tiny part of its 70km^2 ground package.

In that small area, MTH has already defined a 373Koz of gold and 11Moz of silver JORC resource.

And MTH will soon be upgrading that JORC very soon.

Today’s announcement mentioned the cut-off timeframe for drilling on that resource upgrade has been extended to late May 2025...

This is a good sign that MTH hasn't capped off the JORC resource there just yet AND it's a nice indicator that the resource is growing.

MTH had $16.7M cash in the bank at 31 December 2024 and as we mentioned above, is fully funded for ~35,000m of drilling in 2025.

As a result, MTH has the cash runway to deliver potentially big catalysts in the near term without a cap raise overhang weighing down the stock.

What could trigger a re-rate in MTH’s share price?

In the short term we are looking out for four catalysts from MTH:

1. Drill results from deeper drilling at Target 1 - if those come in, MTH could add to the current JORC in a big way.
2. JORC resource upgrade - MTH is looking to double its existing JORC resource which could set a new floor price for MTH (depending on how big the resource upgrade is).
3. Drilling at Target 2 (big blue sky unknown upside) - this is the one where we don't fully know what to expect. The very high grade channel sampling results released today look promising. Any major hit could be big for MTH.
4. Big moves in the gold or silver price - The in-ground value of MTH’s resource is directly correlated to the gold and silver price. As commodity prices go up, so does the lookthrough value of MTH’s project.

We think that the JORC resource upgrade will be a way for MTH to de-risk its project and backstop its valuation at a higher level.

A big discovery at one of MTH’s regional targets could trigger a further sustained (and we hope permanent) re-rate in the company’s market cap.

In today’s note we will cover:

• Where MTH is at in its development
• How MTH is following the US$1.1BN Bolnisi Gold playbook
• M&A in Mexico and a professional fund managers take on why it could heat up
• More detail on the targets MTH will be drilling
• And the next catalysts we are looking out for with MTH

The sampling results from today show there is definitely high grade gold and silver at Target 2.

And clearly the old timers knew that too...

In the image below all of those small cream/black spots are old mine pits/adits...

Now we just need MTH to show the gold-silver mineralisation extends underground at depth and in size via the current drilling...

MTH now drilling Target 2 - the blue sky exploration upside

After today we could start to see drill results come in from MTH’s appropriately named ‘Target 2’.

(Look we didn't Invest in MTH for creative target names, we Invested for high grade gold and silver discoveries)

MTH will be testing its geological thesis and using its target generation expertise at Target 2.

MTH has long said it has a "district scale" project on its hands.

If results are strong at Target 2, we think it could help MTH unlock a repeatable process at the project where there are nearly 300 historical gold-silver mine and pit workings scattered over its large project area.

To get an idea of the size of MTH’s project, we have highlighted the four different “vein corridors” that run east to west across MTH’s ground and where the current JORC resource sits:

As mentioned earlier in today’s note, MTH is drilling in areas where it knows there is silver and gold...

That knowledge is based on the fact there are all of these old mining workings including adits and pits that were left by old miners who were mining the easy to get to material at surface WAY before modern mining techniques were a thing.

Because they didn’t have the technology that we do today, past artisanal miners would target “easy to get to” areas, including obvious outcropping gold and silver.

So, the “low hanging fruit” at surface has been picked, but the deeper, just as good stuff is yet to be tested.

The cream/black dots on the map below are where historical mining took place:

Today, MTH also put out channel sampling results today which again showed very high grade silver-gold on this part of MTH’s project, starting from surface.

MTH had channels as big as 9.5m with gold grades as high as 31.8g/t and silver grades as high as 1,004g/t silver.

Remember these are just channel samples FROM SURFACE.

Basically MTH is digging out trenches, sampling them and finding very high grade silver-gold.

All we need now is for MTH’s drilling to confirm that those high gold and silver grades extend underground...

New MTH discoveries could trigger corporate interest...

We think any whiff of a major new discovery similar to or bigger than the current JORC resource could be what puts MTH on the radar of much larger companies...

Gold M&A is on the rise in a big way - majors are printing huge amounts of cash due to the current gold price (being at an all time high) and are now growth hungry.

Any project that has the potential to be a cornerstone asset in the future gets bought out as soon as it starts to show any signs of size/scale...

A good example is the Spartan Resources deal with Ramelius in Western Australia - the producing company Ramelius paid almost its entire market cap for an explorer (Spartan) because of the growth upside...

We have also seen M&A creep into Mexico recently with First Majestic Silver paying US$970M for Gatos Silver...

One resources focused fund manager (Adrian Day) said in a recent interview:

“The opportunity for a company to go in and start acquiring some good Mexican assets - producing or non-producing - and acquire them relatively cheaply, is probably very compelling”

MTH’s Managing Director and CEO John Skeet has gone through this playbook before too...

In Mexico...

On a gold asset...

MTH is looking to replicate a US$1.1BN ASX success story

MTH is currently capped at $43M.

We are Invested to see MTH follow a similar pathway as the US$1.1BN ASX silver-gold success story that MD John Skeet was involved with.

(John was the General Manager of Projects with Bolnisi)

We have written about the Bolnisi story several times now, but here is a quick recap for new readers:

In 2002, Bolnisi acquired the Palmarejo Project in Mexico.

Between 2003 and 2007, Bolnisi and its joint venture partner drilled out the project, delivering strong gold and silver hits.

Then within ~18 months of drilling the company made new discoveries and got to a ~3 million ounce gold inferred resource.

Off the back of that exploration success, the company raised tens of millions of dollars and moved its resource into higher confidence categories (indicated/measured).

Then Bolnisi got all of its permits and took its project into the construction phase.

It was at this time that Bolnisi was taken out by Coeur Mining for US$1.1 billion.

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.

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.

MTH’s assets were brought into the company in May 2020.

Then Skeet, who was one of the vendors of the assets, joined the company in September that same year.

Below is where MTH’s project sits relative to that US$1.1BN Bolnisi deal... so Skeet should know this part of the world very well:

M&A appetite for Mexican assets heating up?

We have been talking about a wave of M&A that would emerge in the gold space for over a year now.

Our view was that as the majors make a ton of cash while gold prices are high, they would first consolidate and get even bigger.

AND then look further down at the mid/small caps for takeover targets.

Here is the order of events we said we expected to see as the gold price continues rising:

• Majors with producing assets start to make record profits - we can see this happening in the recent quarterly reports of the producers. Some have had their EBITDA quadruple...
• Majors then look to do M&A deals (first between each other, then in the mid cap space) - the Newcrest, Newmont deal was the trigger back in 2023. Then in 2024 the deals got more and more into the mid caps space.
• Eventually M&A begins at the small/mid cap space - Now in 2025 we are starting to see the bigger players come in and pick off the small caps (The ~$110M AngloGold deal with Matsa is a good example of this).

We think that the M&A cycle is now firmly in that third stage.

We watched the following interview with Adrian Day of Adrian Day Asset Management where we learn a bit more about this.

He talked about M&A, specifically in Mexico starting at 6:00 - he says specifically:

“The opportunity for a company to go in and start acquiring some good Mexican assets - producing or non-producing - and acquire them relatively cheaply, is probably very compelling”

“Someones going to do that sooner or later”

(Source)

They then talked about the precedent for big deals happening on Mexican silver/gold projects:

1. $4.7BN First Majestic buying Gatos Silver for US$970M.
2. $5.6BN Coeur Mining buying Silvercrest in a deal worth US$1.7BN.
3. $960M Discovery Silver getting active and buying an asset off Newmont for US$425M.

What this shows us is that there is a clear precedent being set - IF a project can start to show size/scale, then there are corporates on standby ready to swoop those projects up...

Ultimately, we are Invested in MTH to see it grow its resource, but we would also be very satisfied if the company was taken over off the back of a major re-rate in its share price.

That forms the basis for our Big Bet which is 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.

What is next for MTH?

🔄 Additional assays (Target 1) - MTH still drilling Target 1. Today’s announcement said that drilling would continue through to May before being cut off for the resource upgrade to be calculated. We are especially looking forward to the results from the drilling done at depth.

🔲 Double JORC resource - This will likely come after the May cut off for drilling at Target 1.

🔲 Drill results from Target 2 - With drilling now underway at Target 2, we are hoping to see some big silver-gold hits from a part of MTH’s project that is completely separate to its JORC resource.

Risks to MTH’s share price in the short-term

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.

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