SS1 Secures Cornerstone Investment from Strategic, US Based Fund… and some from us.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,051,936 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.

The “planets are continuing to align” around our Small Cap Pick of the Year for 2024 Sun Silver (ASX:SS1).

The silver price is moving up.

A Chinese export restriction on critical metal antimony grabbed the market’s attention, given its strategic military uses.

And last night the US Fed delivered its first rate cut in four years.

And it was a big cut of 50 basis points.

Entering a rate cutting cycle is a positive signal for the small end of the market AND a booster for precious metals prices too.

And this week a new strategic, US based cornerstone investor has joined the SS1 share register...

SS1 has a 432Moz silver equivalent resource in Nevada, USA.

(It is the largest primary silver resource on the ASX.)

Drilling is currently underway to expand the resource with successful extensional hits already delivered in recent weeks.

SS1 also found antimony in these recent extensional drill holes...

So there is potential to add a significant (and US based) antimony resource if SS1 re-assays the ~200 historical drill cores that were not previously assayed for antimony.

(the USA has the world’s largest military and no localised antimony production...)

This macro momentum in silver and antimony has fed into SS1’s recent price run.

Yesterday, SS1 announced completion of a successful $13M placement to accelerate development of its project.

We put $150k into the placement to increase our SS1 position, given the strength in the silver and antimony macro themes and recent momentum in the SS1 share price.

(and momentum in other silver and antimony stocks in general)

SS1 also announced that a new strategic investor, US based Nokomis Capital, invested $9.2M into the capital raise.

Nokomis now holds a ~9% cornerstone stake in SS1.

Nokomis invested $4.2M at the 62c capital raise price...

Then a further $5M at 80c, a significant premium to the capital raise price.

For an institutional fund to take a position in SS1 at a premium shows strong belief in the company and its project.

So who is Nokomis Capital? SS1’s new substantial shareholder.

Nokomis Capital has ~US$641M under management (Source, Source)

We did a bit of digging and found that Nokomis Capital also has large positions in gold giant US$41BN capped Agnico Eagle and US$1.4BN capped Mag Silver.

We also noticed Nokomis’ has a ~1.9% stake in US gold-antimony developer Perpetua Resources.

This was from Perpetua’s January 2023 presentation:

(Source)

Perpetua Resources is the gold/silver company that got funding support from the US Department of Defence.

While it seems strange for the Department of Defence to fund a “gold and silver” project - the real reason they were interested is the antimony byproduct...

Antimony is used in things like infrared missiles, nuclear weapons and night vision goggles, and mostly as a hardening agent for bullets and tanks.

And the US has no local antimony production.

All up Perpetua Resources has received:

• $24.8M in funding from the Department of Defence under the DPA Investment Program to support environmental and engineering studies in 2022.
• $34.6M in 2024 under the Defense Production Act designed to support construction readiness and environmental activities on this mine.
• And a $1.8BN letter of interest for a loan from the US Export-Import bank to construct the mine.

SS1 has both silver and early sniffs of antimony across its US based project and we’re hoping it can follow in the footsteps of Perpetua Resources when it comes to funding avenues from the Department of Defence.

(read about SS1’s antimony potential here)

SS1 recently announced that it was also looking at “potential funding avenues with the Department of Defence in response to the urgent demand for antimony in the U.S”.

(Source: SS1 announcement)

Hopefully that means SS1 is putting itself in front of the right people to try and get funding for its project, similar to the deals signed by Perpetua.

Perpetua’s share price went from a low of ~US$2.50 per share to trade at close to ~US$8.50 per share as it secured the funding from the DoD.

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.

IF SS1 can get its hands on some funding from the US government, we are hoping it can generate some additional momentum into SS1’s share price, like we saw with Perpetua.

Ultimately, we think that as SS1 clears the pathway to getting its project developed, its valuation should move higher - assuming silver prices are strong.

That forms the basis for our SS1 Big Bet which is as follows:

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.

Why we like SS1 right now

After its recent share price strength and our Investment in this week's capital raise, SS1 has become the largest position in our Portfolio.

Early this year we called SS1 as our Small Cap Pick of the Year for the reasons we outlined in our SS1 initiation note.

Since its ASX IPO in May, SS1’s share price started strong, came off a bit and went sideways for a couple of months.

In the last few weeks it has surged back after delivering some good extensional hits and a silver resource upgrade.

AND uncovering the potential for “antimony” across its project, right at a time where US-based antimony projects are in the spotlight.

SS1 has obviously helped along by strong macro conditions in silver and antimony - (this is where a bit of luck and timing was needed as nobody can control the ebbs and flows of macro theme sentiment)

With that in mind, here is a short summary of the key reasons that we like SS1 right now.

• Largest silver resource on the ASX - SS1 has the largest primary silver resource on the ASX. We think that this means SS1 could trade at a share price premium as the de facto silver equity on the ASX (taking over the mantle from Silver Mines Ltd).
• We like silver... a lot - We are big believers in the silver investment thematic. The price of silver is currently at around $30/oz. If the silver price continues to run SS1 is our strongest bet to be leveraged towards the thematic.
• Fed rate cutting cycle has started - this will help the silver price and create a “risk-on” environment encouraging money flow into early stage companies.
• SS1 has antimony potential, the US needs it... desperately - China recently restricted the export of antimony. The US is desperately looking for domestic sources of antimony given its importance in military equipment. We want to see more antimony assays on SS1’s ~200 historical silver/gold drill cores.
• US government may fund SS1 - The US has a track record of funding local antimony projects (see Perpetua Resources). SS1 has hired Holland & Knight to help with funding of projects. SS1 also has applications for a grant for Silver Paste (which we also think adds merit to the US funding story).
• SS1 is drilling right now, new drilling results catalyst - SS1 is drilling right now. We expect to see drilling results assays come out in the next weeks and months. This provides the market with a consistent stream of newsflow and developments to look forward to.
• In the right place to develop a silver mine - SS1 is located in Nevada USA along the Carlin Trend. Home to some of the largest silver and gold mines in the world, this particular location is known for its low cost mining.
• US based Nokomis Capital now holds cornerstone stake in SS1 - new strategic cornerstone investor is possibly the first step in SS1 graduating from a retail story to an institutional story.

SS1 well funded - just before a silver price rally?

Citibanks Commodities desk recently published a report called “The stars align for silver as traditional and new fundamental drivers combine”.

In the report the investment banks analysts laid out a powerful case for silver.

We are big believers in the silver thematic and were bitten by the “silver bug” back in 2020 during the “almost silver squeeze”.

We have been regularly investing in physical silver ever since.

(photo circa 2020)

Each time there is a bump in the silver price, we make our way down to the bullion trader and pick up some more physical silver.

We think the growing interest in silver was evidenced in the strength of SS1’s raise in the current market conditions.

SS1 has the largest silver resource on the ASX and last week the silver price moved strongly up to ~US$31/oz:

(Source)

The report published by Citi went on to say:

“We have been bullish on silver for some time, and we believe the time is right to get even louder about it. We re-iterate our 0-3 month forecast of $35/oz(>15%) and 6-12-month forecasts of $38/oz(>25%) (indicative probability 60%). We believe that the setup in silver is presently the strongest it has been in decades.”

Yep, 6-12 month forecast of $38/oz.

(note that nobody can accurately predict commodity prices so we take it as just one point of input, also we can’t link to the report as it is not public, but there is a summary of it here)

Commodity prices can be fickle, but we hope Citi is right on this as it will help reduce commodity price risk for our SS1 Investment as they get ready to deliver the following newsflow:

What’s next for SS1?

🔄 More Assay results for the 7,500m drilling - SS1 is currently drilling out its project, assay results are expected any day now.

🔄 Antinomy potential - We want to see if antimony is widespread across SS1’s giant JORC resource.

🔄 Further update on US government funding - We want to see SS1 put out an update on the US$60M grant application the company is working on for its silver paste business.

What could go wrong?

Funding risk/dilution risk

As a small cap, SS1 is reliant on capital markets to advance its projects. If something negative happens at a macro or company level, SS1 could struggle to access capital on favourable terms. These capital raises may take place at a discount, and result in the issuance of new shares which incur dilution to existing shareholders.

Source: “What could go wrong?” - SS1 Investment Memo 18 May 2024

SS1 completing the recent $13M placement puts them in a good position to continue work such as drilling to expand their 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 share price.

Source: “What could go wrong?” - SS1 Investment Memo 18 May 2024

While the silver price is currently on a run, it could fall again. SS1’s share price and future success is dependent on strong silver prices, meaning seeing a drop in price can impact SS1’s success.

The same goes for antimony, if the antimony price comes off it could impact interest in SS1.

Exploration Risk

There is no guarantee that SS1’s upcoming drill programs in Nevada are successful and SS1 may fail to find economic silver-gold deposits.

Source: “What could go wrong?” - SS1 Investment Memo 18 May 2024

SS1 has already delivered successful extensional hits, but there is no assurance that the further drilling will confirm the existing mineralisation or identify extensions.

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