SS1 finds a 6,216 g/t silver intercept. High grade target zone identified. Drilling starting in weeks…

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 3,810,000 SS1 shares at the time of publishing this article. The Company has been engaged by SS1 to share our commentary on the progress of our Investment in SS1 over time.

6,000 g/t plus silver drill intercepts.

That is ultra high grade for silver.

Our 2024 Small Cap Pick of the Year, Sun Silver (ASX:SS1) has just announced ultra high grade intercepts after assessing historical drill cores from their project.

(Source)

SS1 has already got a giant 292 Moz silver equivalent resource in Nevada, USA.

These high grade hits that SS1 has uncovered all occurred on the north west boundary of this current deposit.

So basically this means that SS1 now has a new potential high grade zone to test with drilling over the coming weeks.

And the potential to deliver some new high grade hits (the market loves exploration upside) and if successful expand their already large silver equivalent resource.

(keeping in mind of course that exploratory drilling is high risk and can often deliver disappointment if nothing interesting is found...)

So the next few weeks of drilling just became very interesting with this new potential high grade zone SS1 is about to drill into...

Drilling should tell us more - and that’s just a few weeks away now.

Next we want to see a drill plan with targets and a “drilling has commenced” announcement.

So why are we only finding out about these high grade intercepts now?

Unlike in Australia and Canada, there is no central government database where all drilling results need to be stored.

All past drilling data remains with whichever company owned the project at the time.

Which means it is the responsibility of the asset owner to maintain and pass on.

SS1 says they have successfully obtained a substantial amount of data from past owners of this project.

(remember that SS1 acquired this project last year when nobody cared about silver)

So the collation and analysis of this historical data and uncovering of these ultra high grade hits has now pointed SS1 to a high priority drilling zone.

And at a time when the silver price is near 12-year highs and the US government is getting serious about building out its solar power supply chain.

(Silver is a crucial component needed to make solar panels, US President Joe Biden recently increased tariffs by 25% on Chinese solar panels)

SS1 is hoping to grow its giant silver resource in upcoming drilling - and ultimately put the project into development, so that it can contribute to the USA’s clean energy supply chain.

Historical drill holes revealed a “high grade zone” on the boundary of the JORC resource.

Key drill holes in this target area are:

These holes are extremely high grade and could be the starting point for SS1 to develop an even larger silver resource.

SS1’s drilling program is set to start in a few weeks.

The company will “target the high-grade zone as well as extensional targets along trend”.

Based on the previous technical assessment of the project, the theory was that the deposit flattens to the north...

However it appears that the company that previously owned this project and conducted the study ran out of money before it could drill test this part of the project.

(this was back when the market didn’t care about silver)

Now with the silver price trading at decade highs and with recently raised IPO funds, SS1 is in a position to drill this area and see if it can grow the size of its silver resource.

The silver price is still trading at around US$29, slightly down from its highs last month, but much higher than at the start of the year:

Ultimately, we are big believers in the silver thematic.

By 2050, 50% of the silver demand is set to come from solar panel production.

Solar production is currently dominated by China, and we think that the US will look to expand its solar panel use to both meet climate goals and energy security reasons.

The US Inflation Reduction Act (IRA) has ~A$520BN in funding set aside for the clean energy sector of which the solar industry is one...

Already, the US solar manufacturing industry has notched a record quarter in terms of growth - as the IRA starts to have an impact:

(Source)

All that solar manufacturing will need silver, ideally domestic silver.

(Not to mention silver paste, which is a value added solar panel product that SS1 is looking at making - read our Quick Take)

We think that it is the right place at the right time for SS1 to make a discovery of additional high grade silver to add to its already impressive JORC resource.

SS1’s upcoming drill program

There are two main goals with the upcoming drill program:

1. Upgrade the size of its JORC resource (through exploration drilling)
2. Upgrade its resource classification (through definition or infill drilling)

As investors in early stage resource companies we are most excited by the exploration drilling.

This is a known-unknown that could surprise the market to the upside.

Infill drilling is important too.

Infill drilling will help SS1 upgrade its resource from “inferred” to either “measured or indicated”.

Upgrading the JORC resource is important because investors in later stage companies, and larger players looking to make a takeover bid want the maximum amount of certainty in the deposit before investing.

This will become more important as the company moves towards feasibility studies and eventually (hopefully) developing its deposit into a mine.

Ultimately, both types of drilling will be important for the short and long term future of SS1.

(as high risk/high reward early stage investors we personally enjoy a good old exploration or step out drill campaign where the blue sky potential is there... if successful)

More silver hits is the name of the game, and we are looking forward to seeing the company drill out some key targets.

Today, the company announced that it had completed a review of historical drilling data over the project.

Again, unlike in Australia and Canada, in the US, historical exploration data isn’t readily available through government databases. Which means it is the responsibility of the asset owner to maintain and pass it on.

Importantly, SS1 uncovered some extremely high grade results including 55m at 330g/t of silver which included an interval of 1.5m at 6,216g/t of silver.

These high grade drill results came from the boundary of the resource, and which we hope extends through to the north west.

But there is only one way to ultimately find out what is there...

SS1 will need to drill it.

In addition to the high grade zone identified from the historical drill results, recent fieldwork has identified rocky outcrops and pathfinder elements in the area.

Pathfinder elements are certain elements that if found, are indicative of greater mineralisation.

But again, drilling will be the ultimate way to tell if more high grade silver exists.

We Invested in SS1 and called it our Small Cap Pick of the Year for 2024 to see it grow the size of its JORC resource.

This brings us to our Big Bet for SS1:

Our SS1 Big Bet

“SS1 re-rates to a +$300M market cap by expanding its large US silver resource and moving into development studies 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 SS1 Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Nevada is the “Silver State”, mines everywhere

SS1’s project is located in Nevada, USA.

Nevada is home to the largest primary silver mine in the US and there are over 50 different operating silver/gold mines in the same region as SS1’s project.

Companies like A$42BN Barrick and A$13.5BN Kinross are operating projects not that far away from SS1:

In Nevada, SS1’s project is located in the “Carlin Trend”, an area that is home to some of the biggest gold and silver mines in the world.

Carlin-type deposits are known for being easy to mine and process at a low cost.

The first Carlin-type deposit was discovered by Newmont in Nevada in 1961.

This type of deposit is often described as “invisible gold” because the mineralisation cannot be seen by the naked eye.

From a geological perspective the gold and silver exist as little tiny microns that sit around another element called pyrite.

These structures are only marginally bigger than a human hair and are difficult to detect.

Although they are hard to find, they are generally easy to mine.

In the mid-1980s Barrick made a Carlin-type discovery at its “Goldstrike” project in Nevada (not too far from SS1).

This was the project that put the company on the map and produced around 200,000 ounces at 1.2g/t of gold and 200,000 ounces of silver in the mid-1990s.

What made this project so successful was that it was a low cost mining production.

The way that the gold and silver sat within these Carlin-style deposits meant that simple processes could be used to extract the gold and the silver.

Recently, SS1 mentioned that it would “define the limits of oxidisation within its resource”.

In other words, SS1 will try to work out whether the silver and gold from its resource can be easily extracted with processes similar to that used by Barick on its Goldstrike project.

This is called metallurgy and when it comes to metallurgy, “simple and boring” is what we want to see - processes that have been tried and tested...

If SS1 is able to show that its project sits within a Carlin-type deposit, and is easy to extract, we think that it will be a big catalyst for the company.

Here is where SS1’s project sits along the “Carlin Trend” next to some 30 current and former producing gold mines in the area.

If you want to learn more about the geology of Carlin-style deposits there is a great video here:

(Source)

What’s next for SS1?

Drilling Program

SS1 is currently getting set up for its maiden drill program. The next key piece of news that we want to see is some drill targets to follow.

✅ Permitting for drill programme

✅ Drilling contractor secured

🔄 Finalise drill targets + announce a drilling plan

• ✅ Review historical drill logs and interpret data (today)
• 🔄 Undertake geophysical surveys

🔲 Drilling commenced

🔲 Drilling results

Resource upgrade/update

Off the back of its drill program we want to see SS1:

1. Upgrade the size of its JORC resource with exploration drilling, AND
2. Upgrade its resource classification with infill drilling - SS1’s resource is mostly inferred, we are hoping to see SS1 move some of the resource into the higher confidence indicated category).

🎓 Learn more about JORC resources here: What is a JORC resource? How does a company define a resource?

Metallurgical test work updates

We talked about this in today’s note but we think the results from metwork testing will also be important for SS1.

SS1 already has a giant existing JORC resource, the met test work will give us a good idea of how simple/cost effective it will be to process out the silver and gold from the resource.

We think this is a catalyst that the technical part of the market (and the major miners already in Nevada) will be watching for...

Silver Paste Program

At the same time, SS1 will be working on its downstream processing solutions for silver paste, which will provide a potential offtake solution once the company moves through to the feasibility and development stage of the project.

🔲 Silver paste studies

🔲 Silver paste grant funding

If all goes well, we want to see SS1 move through to feasibility studies with strong project economics.

🔲 Commence feasibility studies

What could go wrong?

The three risks we are most focussed on at the moment are “Exploration risk” “Commodity price risk” and “Market risk”.

Namely, drill results could disappoint the market, the price of silver could fall, and with major indices around the world around all time highs - there could be a pull back that impacts the market more broadly that filters through to SS1’s share price:

Exploration risk

There is no guarantee that SS1’s upcoming drill programs in Nevada are successful and SS1 may fail to materially increase their JORC resource.

Commodity price risk

The performance of commodity stocks are often closely linked to the value of the underlying commodities they are seeking to extract. Should silver and gold prices fall, this could hurt the SS1 sentiment and share price.

Market risk

There is always the possibility that broader market sentiment gets worse and shares as a whole trade lower, taking SS1’s share price with it. Alternatively, there is always the risk of further sector specific pain ahead where junior explorers suffer a lot more than the broader market.

Our SS1 Investment Memo

For a full rundown of our investment thesis, read our SS1 Investment Memo, where we share:

• What SS1 does
• The macro theme for SS1
• Our SS1 Big Bet
• What we want to see SS1 achieve
• Why we are Invested in SS1
• The key risks to our Investment Thesis
• Our Investment Plan