MTH: Six new drill results incoming… gold and silver prices surging

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,453,000 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.

Gold and silver prices have surged over the last four weeks.

... with the biggest gains delivered over the last few days.

Mithril Silver & Gold (ASX:MTH) is back too - announcing that they are already well into their next set of drill holes at their gold and silver project.

We are now expecting 6 new drill results from MTH in the near term.

According to yesterday’s announcement, drill cores from two holes of this second stage of the campaign are already at the testing lab...

... meaning drill assay results for these could be announced any day now.

The next drill core has left the site to the lab to be assayed.

Two more completed drill holes are being logged and sampled before being sent to the lab.

...and drilling of the sixth hole is commencing now.

All these holes are on the eastern side of the Target 1 area where MTH drill hole CDH-159 intercepted 33m from surface at 31.8 g/t gold and 274 g/t silver.

(including 7m at 144 g/t gold and 1,162 g/t silver from 18m)

That September drill result pushed the MTH share price up from ~20c to a high of 81.5c on tens of millions of dollars in volume.

And we now expect six new drill results coming from MTH...

(while we all want the share price to go up on a great new drill result, we always keep in mind that exploration drilling is high risk and that “below expectations” drill results will have a negative impact on a company’s share price - this and more risks are outlined at the end of this note and in our MTH Investment Memo)

So far MTH has completed 6,300m of drilling so far out of a planned 9,000m in this current drill campaign...

And MTH has a further 40,000m of drilling planned for 2025.

(and they have the cash to do it - $17.6M in the bank at November)

Gold and silver prices are both surging back this month after some post US election weakness.

We think 2025 could be a big year for gold and silver...

... and for MTH if they can deliver a few more material drill hits like the one they did in September.

MTH already has a high grade JORC resource of 11 million oz silver and 373,000 oz gold at grades of 141 g/t silver and 4.8 g/t gold.

(equivalent to 529,000 ounces of gold)

MTH is aiming to double that resource by the end of next quarter.

As the gold and silver price rises, and MTH adds more ounces to its defined resource, the company’s in ground value increases.

...as does potential interest from institutional funds and major precious metals miners.

MTH just recently completed a $12.5M capital raise at 50c (MTH is currently trading well below this placement price at around 37.5c), and in total held $17.6M cash in November.

This funding has given it the runway it needs to accelerate its drilling plans.

MTH's biggest shareholder, Jupiter Gold and Silver fund invested a further $1.5M in the placement, and now holds 16.1% of MTH.

The Jupiter Gold & Silver Fund has over $1BN in funds under management and amongst a number of big investments, were substantial holders in De Grey Mining at one point.

De Grey went from a sub $15M micro cap explorer to this week receiving a $5BN takeover offer from Northern Star - in under 5 years...

Jupiter obviously knows a good project when they see it - remember Jupiter holds 16.1% of MTH, after running their own due diligence on MTH’s assets.

MTH’s current resource was produced from 17,700m of drilling at a US$12.50/oz gold equivalent all in discovery cost.

So the fact that MTH is now committing to a 40,000m program points to the company’s conviction that it can dramatically scale the resource by finding a lot more ‘low cost’ ounces.

(We’ve got an interesting section on gold exploration economics later in this note)

But for now, MTH appears to be well on the way to its goal of drilling to try double its current resource, and that resource upgrade is expected in Q1 2025.

MTH is drilling around the current JORC resource right now:

Then it's straight into 40,000m of drilling on other targets across the ~10km zone MTH has defined.

MTH already started road/site works, next it will be just a matter of getting rigs onto the targets and drilling.

(Having cash in the bank is a big plus here...)

Circled in red below are the targets MTH is going after in 2025 - the other dotted circles are even more targets that MTH will tackle over time:

MTH put out its maiden JORC resource in 2021, and the project then saw very little drilling until 2023.

During that time MTH just didn't have the capital available to drill out what could become a “district scale” project - but it does now.

By “district scale”, we mean go from its current half a million gold ounce equivalent JORC resource to multiples of that very quickly...

We think MTH is in a far stronger position now to make the most of that “district scale” opportunity, given the cash on hand, and how much its register has changed over the past ~6 months.

MTH has gone from an ASX minnow living hand to mouth, to a company with a market cap of $53M and ~$17.6M cash in the bank.

(AND some really strong institutional backing...)

Exactly what’s needed to be able to fund drill programs to see how big this project can get.

Only ~7 months ago, in May, the company’s biggest backers were the directors.

This is around the time we first Invested in the stock at 10c - MTH has been an excellent Investment for us to date - climbing as high as 81.5c since then.

Now ~38% of the register is institutional backers... this is a good sign.

Precious metals projects in this part of Mexico start small and get big very quickly.

MTH’s MD and CEO John Skeet has previously said “These districts can host 1 – 5 million ounces of gold plus 50 – 100+ million ounces of silver.”

Here is John talking about that size/scale potential in an interview with Simon Catt, director of Arlington Group Asset Management.

That size/scale potential has been proven before on the ASX too..

(Source)

(Simon Catt is a corporate advisor to MTH, his group are also MTH shareholders, and he is a silver bull - here is an article he wrote about the silver price going to $100 that mentions MTH)

We have talked about the Bolnisi Gold story multiple times before in our MTH notes... but we are going to talk about it again as it's a really good one.

Bolnisi was the company MTH’s MD John Skeet worked at through to a takeover in 2008 for US$1.1BN.

They started small and had the project in development in ~4 years - then in came a billion dollar plus takeover deal.

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.

Interestingly, M&A activity in Mexico is back on the cards again after the US$1BN deal for Gatos Silver earlier this year...

(Source)

MTH is in the same region as these companies and is looking to show that its project can mix with others in the region.

IF MTH can double its JORC resource (to ~1 million ounces of gold equivalent), it can start going after the regional targets across its project.

The regional targets are the blue sky exploration upside for MTH, especially after all the targets the recent Lidar surveys defined:

We are looking forward to a big 2025 for MTH, where hopefully the company is able to make progress towards 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.

Exploration economics: MTH is finding lots of “cheap” gold and silver ounces

We think MTH has found an excellent amount of gold and silver for the capital deployed so far, and we expect the company to continue to find more “cheap” ounces of gold and silver.

Exploration economics are important for MTH and other gold and silver explorers.

Cheaper ounces mean that for every dollar invested in the ground, explorers add incrementally more resources to their projects.

It also reduces the cost of capital and strengthens the confidence of institutional investors, who want “bang for buck” - noting that prominent gold and silver fund Jupiter now holds 16.1% of MTH.

We did a bit of digging into MTH’s exploration economics and found this in a recent MTH investor presentation:

(Source)

That means it costs MTH US$12.50 for every gold equivalent ounce it finds in the ground.

By recent measures of gold exploration economics - that is extraordinarily cheap.

That’s because between 2009-2018 the average unit discovery cost was $62 per ounce of gold-equivalent (in constant June 2019 US Dollars). (Source)

Below is a chart which shows that gold exploration economics point to an increase of roughly US$10/oz gold equivalent in average unit discovery cost around the world, every decade.

(Source)

It would be quite safe to assume that this discovery cost is now much higher in 2024.

Inflation would make that per ounce cost much higher, and the gold price is now way higher as well, currently sitting at ~US$2,693/oz.

There are operational factors as well.

The overall trend is that to make a gold discovery, drillers need to put more holes in, at deeper depths, and this means spending more money to find ounces of gold and silver.

For instance the average depth of a gold discovery has doubled from 41m in 1985 to 82m in 2019:

(Source)

Under John Skeet, MTH has been returning some excellent shallow hits of late.

Just this September, MTH uncovered a fantastic 33m intercept from surface at average grades of 31.8g/t gold and 274g/t silver.

Read more: MTH announces giant gold-silver hit - assays pending on new hole to test it along strike

Hits like these will be incorporated into the upcoming resource which is due in Q1 2025, and for MTH to deliver such a shallow hit is remarkable from a gold exploration economics perspective.

Shallow hits, and with so many targets to follow up on the project... we think MTH’s exploration economics are enviable.

Again, this means more money can be put back into further exploration and development.

While MTH will still need to do additional work to firm up the confidence of its resource and move more into the reserves category over time - these gold exploration economics make us feel comfortable in our MTH Investment over the long run.

What do we want to see next from MTH

🔄 Additional assays (soon) - this will tell us how much additional, (hopefully) high grade gold-silver mineralisation is at MTH’s project in Mexico.

🔄 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.

🔄 Double 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.

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