MTH: Third drill rig on the way, More silver and gold results any day now…? Can they repeat “the big one”?

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 2,777,000 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. 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.

Is it happening?

We have been talking more about a potential breakout in silver prices for a few weeks now...

(well, more like 4 years actually)

It finally looks like a technical breakout might be happening... (more on this shortly)

Overnight, silver hit a 14-year high of ~US$39.05.

(follow the live silver price here)

(Source)

Our Investment Mithril Silver & Gold (ASX:MTH) already has a defined 373Koz gold and 11Moz silver JORC resource estimate that its aiming to double this year.

MTH is drilling 35,000m in 2025, and just raised ~A$12.5M from Canadian markets (which comes with 4 month mandatory escrows on placement stock).

With the cap raise locked away, MTH is bringing on a THIRD drill rig.

The silver price run sets the stage for MTH to potentially repeat what it did last year...

Last September, MTH hit “the big one” - a 7 meters at 144g/t gold, 1,162g/t silver intercept.

(that’s not a typo)

The share price promptly ran from ~9c to a high of 81.5c, settling to between 40c to 50c since (the $12.5M cap raise from last week was priced at ~ 40.5c - which looks like a nice floor).

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.

We want to see MTH deliver another big drill hit in the coming months that can materially contribute to growing its silver and gold resource, and hopefully re-rate the share price higher again.

(No guarantees of course, this is small cap resources investing, anything can happen.)

MTH is currently drilling with two rigs and has a third rig on the way (source)

Between now and the end of the year MTH will be drilling across three key target areas.

Target 5 (which MTH will be drilling this quarter) looks especially interesting with recent trench results returning grades like 5.36g/t gold and 777g/t silver).

(Source)

(more on those key targets later in today’s note)

AND MTH has a resource estimate upgrade coming, which it expects will double its existing 373Koz gold and 11Moz silver JORC resource estimate.

We think strong drill results from its two regional targets, coupled with a resource upgrade in between could trigger a similar run to the one we saw last year.

Just how big could MTH’s project be?

A few weeks ago Arlington Capital’s Simon Catt quoted MTH’s technical director:

“The worst-case scenario is... 2 or 3 million ounces [gold equivalent]. That was the downside. And he said maybe it could be a Fruta del Norte... 13 or 14 million ounces of [gold equivalent]”

The numbers Simon and John are talking about are all in gold equivalents, which is basically when the gold and silver are grouped and reported as one in terms of gold (or silver) equivalent.

In this instance, MTH’s current resource sits at 373,000 ounces of gold and 11 Million ounces of silver, reported as 529,000 ounces of gold equivalent.

Here is the clip (starting at the 7:00 mark):

(watch the video here)

The estimates above and in that video are arbitrary. We will need to see a lot more drilling and at least a few more new discoveries before we know if the size John and Simon are talking about is possible. There is no guarantee MTH finds a resource at the size/scale mentioned in the video.

MTH funded to drill out its project into a strong silver market

MTH just closed out a ~A$12.5M capital raise at ~40c exclusively in Canada, where placement stock gets 4 month forced escrow.

Forced escrows on that placement stock means MTH has time to deliver major catalysts without cap raise/placement stock overhang.

(Source)

So, MTH is going into a period where it is very well funded, and could deliver material news (with three concurrent drill rigs) ... all while the silver price is running...

What triggered the sudden silver rally over the last few days, and will it keep going?

Over the weekend Trump announced a 30% tariff on Mexico (the world’s biggest producer of silver).

(Source)

And now there could be a sudden rush from US buyers to close out silver positions before the cost to import silver from the world’s biggest producer goes up 30% on August 1st...

OR get enough silver into inventories to not leave themselves exposed...

Back in February, we saw physical gold getting flown in planes from London to New York to meet physical demand during uncertainty around tariffs on importing gold bullion.

Gold prices reacted to that rush by rising over 10% AND staying up...

Will Trump’s tariffs trigger a step up in silver prices between now and August 1st?

There’s obviously no guarantee... but we think it could...

Silver is different to gold because unlike gold, as well as silver being considered as a store of value, there is also real world industrial demand for silver from industries like semiconductor manufacturing, solar panels and the nuclear industry.

Industrial users can’t just “stop” buying...

And silver hasn’t really followed the gold price YET (like it does in every other cycle).

We have shared this video a few times with technical analyst Michael Oliver who said: “If silver goes above $35, watch out because if it goes above $36 it's a triple top breakout”.

And then said “we are going to get another launch” and when we get it “it will be at a speedier process than what gold is currently doing”.

It's worth noting, technical analysis of charts isn’t really an exact science. No one really knows what will happen next, there is a chance the silver price goes down over the coming months.

Gold is currently trading at all-time highs and is up over 100% over the last 18 months.

IF silver does anything like that, it could trade above US$50/ounce.

Again, there is no guarantee silver performs the same way gold did. The two are different metals with different markets/demand profiles. Silver could go down even when gold prices are up.

The difference between silver and gold is that even in a market where silver prices are going vertical, there are far fewer companies to invest in for exposure.

A big drill hit, into a running silver price, is the most ideal setup we could ask for going into the second half of this year for MTH.

But the key word there is ‘ideal’ - it also might not happen.

Here is another technical expert - Mike Maloney - who put out the following video after yesterday’s run in the silver price and said a “$10 move is coming quickly”.

Mike thinks the silver price is going to US$48 per ounce:

(Source)

MTH has 3 major catalysts coming within the next 6 months

We think MTH has three key catalysts which could all land between now and the end of the year:

1. Drilling results and a resource upgrade from Target Area 1

MTH is still actively drilling here. The holes we are looking out for are the deeper holes on the fringes of MTH’s existing resource estimate.

The aim here is to double MTH’s existing 373Koz gold and 11Moz JORC resource estimate.

(Source)

2. Drilling for a new discovery at Target Area 3

At Target Area 3 we are hoping MTH can make a NEW discovery that is as big (if not bigger) than its existing resource.

The interesting thing we learnt about Target Area 3 on our recent site visit was that the locals in the area keep pointing out an old mine adit to the north of this area, which makes us think target area could actually grow in that direction.

3. Drilling for a new discovery at Target Area 5

Target Area 5 was the one MTH’s technical staff seemed to be most excited about on our site visit.

So far all of the pre-drilling work at this target is marrying up:

• LIDAR surveys (which keeps finding more old mine adits and pits),
• Channel sampling (which finds high grade silver and gold), and a;
• 130m underground adit where MTH have traced parallel veins ~500m in length and 1.6km wide...

Just last week, MTH showed the market that this target is even bigger than they first thought - and the grades are seriously high - here are the results from the channel samples:

(Source)

Here is a before and after at Target 5 (all of the red is new data):

(The yellow lines are “vein traces” - this is where we want to see MTH drill)

Another thing that is interesting about Target 5 is the base metals grades which increase as MTH samples further south:

This could be a signal MTH holds a large part of the system all inside its project area.

The image below is a good way to visualise what MTH is trying to explain when it talks about “vertical extent” - most projects host one part of a system (either the high grade stuff at the top, or the lower grade stuff down the bottom...

MTH has confirmed its got the top, the base metals grades down in Target Area 5 could be a sign there is a mixture of the stuff below too:

Two things could happen at Target 5:

1. MTH drills and makes a new high grade silver and gold discovery (in line with those grades from the channel samples) - which we think the market would like on its own.
2. In addition to silver/gold, MTH hits base metals in high enough grades and the right type of rocks to validate its “vertical extent” theory.

If the first, depending on the results, it could mean a new discovery.

The second would reinforce the project’s “district scale potential” to the market and corporates.

Both together, in our opinion, could be a game changer for MTH.

We are also conscious of the real possibility that MTH drills and doesn’t find economic mineralisation, which would reduce some of the exploration upside premium in MTH’s current market cap.

MTH plans to be drilling both Targets 3 and 5 NEXT QUARTER.

We are hoping MTH can grow its resource (with or without new discoveries) and achieve 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 no guarantee that our Big Bet will ever come true. There is a lot of work to be done, many risks involved, including development risk, country risk and regulatory risk - just some of which we list in our MTH Investment Memo.

Success will require a significant amount of luck and good management. Past performance is not an indicator of future performance.

Our MTH Site Visit

We were on an MTH site visit a few weeks ago.

Here is a video of us landing on an airstrip on the side of a mountain...

And some pictures from the site visit:

We got to go through some of the historical workings from the last 100 years dotted across MTH’s land holding, where old timers have mined out gold and silver:

Check out our full site visit write up here: Silver price breakout during our MTH Silver and Gold Site visit

Reminder - 10 reasons why we are Invested in MTH

We first Invested in MTH back in May 2024 at 10c per share - here were the key reasons for us initially backing MTH.

Note: These reasons are now 12 months old, so some are slightly out of date. In those cases we have provided an update in bold and italics.

1. MTH was capped at >$110M in 2020 and is 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.

🚨 Update: MTH briefly touched a ~$81M market cap in September 2024.

After the placement stock is issued from last week’s capital raise, MTH will have a market cap of ~$88M (at today’s 49.5c share price).

MTH is one of the biggest positions in our Portfolio.

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.

🚨 Update: We are expecting a JORC resource upgrade soon. MTH has flagged a ‘doubling’ of the resource estimate so we will keep an eye out for that - see more in Reason 4.

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.

🚨 Update: MTH just closed out a ~A$12.5M capital raise and is currently drilling with two rigs on site.

A third rig is expected to be on site in “late 2025”.

4. Potential to double its existing 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.

🚨 Update: MTH has hit some really good drill results in and around its existing JORC resource estimate since our Investment Memo was first published.

MTH’s JORC resource estimate upgrade is now due within the next few months.

5. CEO & MD John Skeet has been there and done that (billion $ takeover)

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.

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.

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.

🚨 Update: At the time of writing our MTH Investment Memo (May 2024), silver was trading at ~US$30/ounce.

Today silver is trading ~30% higher at ~US$39/ounce.

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.

🚨 Update: At the time of writing our MTH Investment Memo (May 2024) gold was trading at ~US$2,300/ounce.

Today gold is trading at ~US$3,360/ounce.

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.

🚨 Update: MTH hit 144 g/t Gold, 1,162 g/t Silver over 7.0 metres in early September 2024 and triggered a 7x rally in its share price.

We think MTH has the potential to deliver results like this again. At the same time, it's not a guarantee, this is early stage exploration.

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).

🚨 Update: With rising silver/gold prices, most of MTH’s TSX/ASX peers have rallied and so we think there is still a valuation gap between MTH and its listed peers.

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