SS1: Historic drill cores and logs analysis to reveal best new targets for upcoming silver drill campaign…

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.

Silver continues to trade at near decade highs...

For TWO full weeks now.

Increasing the likelihood that it’s not just a “blip” like back in 2021.

We are watching closely to see if it will break out even higher.

The USA and China continue to battle over the supply of critical minerals and energy.

Silver appears to be the next mineral swept up in the stand-off between the two countries.

Specifically for silver’s use in the production of solar panels.

The US government has recently slapped a 50% tariff on Chinese solar panels.

Despite the USA’s own target of 30% solar energy as part of its national energy mix by 2030.

(USA is currently at ~4% solar energy)

Our 2024 Small Cap Pick of the Year Sun Silver Limited (ASX:SS1) is developing a 292M ounce silver equivalent project in Nevada USA.

With a plan to further refine the silver into “silver paste” for direct use in solar panels.

This week SS1 announced they have partnered with a group that specialises in securing (non-dilutive) government grant funding for critical metals projects for the USA.

(this group has already secured over US $400M for various ASX companies)

SS1 also announced that they have started re-analysing historical drill cores and logs to help identify the best drill targets for their upcoming drilling campaign to increase their resource classification.

Silver’s use in solar panels has been making the news in the last 48 hours:

(Source)

SS1 is developing a 292M ounce silver equivalent project in Nevada USA.

Nevada is ranked as the second best mining jurisdiction in the world according to the Fraser Institute.

SS1 plans to further refine its mined silver into “silver paste”, a crucial element in the solar panel manufacturing process.

With the US eager to build up a domestic supply chain of solar panels, we think the time is now for SS1 to build upon its existing silver resource and advance its silver paste technology.

(especially if the silver price delivers another leg up)

SS1 has an Inferred JORC resource containing 175 Moz silver and 1.37Moz gold.

(which makes 292M “ounces equivalent” of silver)

This is comparable to the largest primary silver mine in the USA, the Rochester Deposit - which is owned by $2.26B Coeur Mining and is in the same region as SS1’s project.

Yesterday, SS1 announced that it was preparing for a maiden drill campaign to upgrade its inferred resource by examining the “archives” of historical drill cores and RC chips with a pXRF gun.

Reviewing the old cores and logs will help hone in on some drill targets for SS1’s upcoming drilling campaign.

The goal is to better understand the geology it is working with and ultimately upgrade its JORC resource through drilling into the highest value targets in the upcoming maiden drill program.

SS1’s project already had around 200 drill holes and 60,000m of drilling done on it BEFORE SS1 acquired it during the lull in silver sentiment last year.

The past drilling covers just 20% of the property and the deposit remains open along strike and at depth with multiple intercepts OUTSIDE of the current resource model.

So there’s plenty to work with on the project in terms of identifying and drilling new targets to upgrade its (already big) JORC resource of 292M oz of silver equivalent.

While also progressing studies on the production of silver paste...

Silver paste is a material that is applied to solar panels, and cannot be easily substituted.

Solar paste manufacturing is largely concentrated in China which makes ~90% of the world's solar panels.

But the US government has recently slapped a 50% tariff on Chinese solar panels, which we think makes SS1’s silver project (and silver paste initiatives) more attractive.

Especially IF the silver price continues the run it started back in March.

SS1 has partnered with a US group called Holland & Knight that specialises in US Department of Energy grants.

Holland & Knight has already successfully secured US$400M in US government grants for a range of ASX listed companies.

The plan is for Holland & Knight to help SS1 secure some non-dilutive US government grant funding to build their project, given SS1’s project appears to be of strategic importance to the USA’s energy independence goals.

While these silver paste studies take place in the background - we are currently most interested in the prospect of SS1 making a substantial upgrade to its JORC resource, and moving more of its resource into higher confidence categories.

This upgrade will come through a combination of drilling and updated resource modelling.

The upcoming drilling is the first step for SS1 to upgrade its JORC resource, by first interpreting the existing data to identify a drill program.

Nevada, a top ranked mining jurisdiction

Today, there are over 50 different operating gold and silver mines in Nevada and the state has often been ranked as the top mining jurisdiction in the world:

Silver mining in Nevada began in 1858 with the discovery of the Comstock Lode, and it became the first ever major silver mining district in the US.

Since then silver and gold mining has played a crucial role in Nevada’s economic development.

Key neighbours to the project include Coeur Mining’s Rochester deposit, which is the largest primary silver mine in the US, operating profitably at 12g/t of silver (with no gold credits).

Also, the Kinross Gold Bald Mountain deposit 25km to the south operating profitably with a head grade of gold at 0.5g/t.

The key reason for these lower grade deposits operating profitably is partly the cheaper mining costs in Nevada.

AND SS1 has stronger grades than both of those deposits.

There are over 18 projects within 150km of SS1’s Maverick Springs project.

So, how does SS1 compare to some of the producing mines in Nevada?

(Source, Source)

And the market cap and locations for some of those companies:

We think one of the key reasons that SS1 has a lower market cap is because it is earlier in the mining company lifecycle and its resource is in the “inferred” category.

The goal of SS1’s drilling program is to upgrade its “inferred resource” to “measured and 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.

Upgrading a JORC resource is like playing “guess the celebrity” at the local pub trivia.

At the start, the picture is blurry...

But as more and more of the resource is drilled out the picture becomes more and more clear.

Generally, companies and later stage investors like the “bet” when the picture is more clear and it is SS1’s job to get the resource there.

As earlier stage investors, we like to “bet” on the resource early, and hope that the company can make the picture clearer through more drilling.

(and hence attract bigger investors and resource funds)

Ultimately, this is what we are invested in SS1 to see, which brings us to our big bet for the company:

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.

Downstream value add - SS1’s silver paste project

Let’s set the scene.

The US and China are in a battle for control over critical minerals.

China currently supplies 90% of the world’s solar panels.

The USA has set a target for solar to reach 30% of U.S. electricity generation by 2030.

In order for the US to meet its sustainability goals under the net zero plans it will need A LOT more solar panels.

The US doesn’t want to be reliant on China for this critical piece of infrastructure, and has recently added a 50% tariff on Chinese solar panels.

The US needs to develop a domestic solar panel supply chain.

And fast.

One of the key components of that supply chain is “silver paste”.

As a downstream value add to the project, SS1 is developing its capabilities to produce silver paste for the US domestic market.

We think this value added product will differentiate SS1 in the market and help the company integrate with the US solar manufacturing industry more closely over the long-term.

(and be better placed to to ride the “USA localisation of solar” theme)

Last week SS1 appointed the US group Holland & Knight to seek out grant funding from various US government departments to support these endeavours.

Grant funding will provide non-dillive capital to SS1, which is good for existing shareholders.

We expect Holland and Knight to be well placed to help SS1 secure US government grant funding.

The firm was responsible for 40% of all successful 2023 IRA renewable energy grant applications, including over US$400M in grant funding secured by various ASX listed companies.

SS1 also provided a bit more insight on the manufacturing process for silver paste, which can be seen in this image:

(Source)

China retains a 90% market share in the solar industry, something which the US government is intent on changing:

(Headline date range: January 2024 - May 2024)

In light of the recent tariffs on Chinese solar cells, we’re keen to see SS1 explore its options for grant funding from the US DOE to progress its silver paste ambitions in partnership with Holland & Knight.

SS1 noted in their announcement that silver paste “sells at a significant premium to the spot price silver via industrial off-take agreements”.

We think this implies that there are significant rewards available if SS1 can become a domestic supplier of silver paste in the US.

What’s next for SS1?

Here is what the newsflow we expect from SS1 over the next six months:

• 🔄 Review historical drill logs and interpret data
• 🔲 Undertake geophysical surveys
• 🔲 Identify prospective drill targets + announce drill program
• 🔲 Permitting for drill programme
• 🔲 Drilling commenced
• 🔲 Drilling results
• 🔲 Silver paste studies
• 🔲 Silver paste grant funding

The ultimate goal for SS1 is to upgrade its existing resource, so there may be some infill drilling, but we hope that there will be some exploration drilling as well to grow the size of the resource as well.

• 🔲 Upgrade Mineral Resource Estimate

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.

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

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