Part 2: Zephyr Minerals - Compelling Junior Explorecos Mini-Series [TSXV: ZFR][OTC:ZPHYF]
This is the second story on my mini-series on several compelling junior exploration plays for the upcoming summer season. I've found
a number of excellent opportunities (in my view) which I'll detail in the
article below. First, I'd like to start off with the fact that I am long these
companies highlighted in these articles, and I'm not paid by anyone to write
about them or compensated in any way for them.
I firmly believe we're in a bull
market in the gold/silver market. The governments around the world have started
the printing presses and they're turning hot hot hot. Gold majors and intermediate
producers have done very well thus far and are hitting multi-year highs.
In previous bull markets, the
juniors and exploration companies don't typically benefit until later stages of
the runs. My thoughts are we're in maybe the second inning of a long bull
market to come.
Overview
First a little interesting fact. BHP (the mining giant today) started with their Broken Hill property which began in a silver, lead and zinc mine in Broken Hill, Australia that was discovered in the 1800s. That mine graded 280MT grading 148gpt Ag, 10% Pb, 8.5% Zn. Why is this relevant? Zephyr Minerals target for this summer, the Dawson-Green Mountain Property has a potential to be a Broken Hill-Type target which is located in Colorado.
The company's Dawson-Green Mountain property is divided into three sections: Green Mountain, El Plomo and Dawson.
The Green Mountain and Dawson sections are Gold/Copper targets, but it's not the primary reason why this stock peaked my interest.
- Dawson does have a PEA of it's own merit with 371,000tonnes at 10.09gpt Au for 120,400oz, with a Pre-tax IRR of 66%, NPV of $46.7m CAD at $1250 gold prices (much higher now with gold at $1700). The deposit is open for expansion.
What was the most interesting portion of this property is the El Plomo section - because recent geological interpretation from Dr. Paul Spry, leads this section to be potentially a Broken Hill-Type target, which if it proves to be correct, would be a bonanza win for shareholders.
Who is Dr. Spry? From the corporate presentation, his credentials specialize in these types of deposits.
Dr. Spry is professor of economic geology in the Department of Geological and Atmospheric Sciences, Iowa State University. He earned his B.Sc. and M.Sc degrees from the University of Adelaide, South Australia, and his doctorate at the University of Toronto in 1984.Dr. Spry has coauthored more than 110 refereed papers in international journals and three books. He is an internationally recognized expert on the genesis of ore deposits and in particular Broken Hill-type Pb-Zn-Ag deposits. His work on the geology and geochemistry of the Broken Hill orebody, Australia, and similar metamorphosed ore deposits around the world is particularly relevant to Zephyr’s Dawson-Green Mountain project in Colorado.
Zephyr Minerals completed a private placement February this year, to raise funds for this coming summers drill program. Last year, they ran some airborne geophysics and that spawned what appears to be a bullseye target. I'll go into more detail in a bit.
So what does success look like? It's a hit at the mag anomaly with silver/lead/zinc (Broken-Hill Type).
Rationale on why I own Zephyr Minerals:
1. Management
The president and CEO of ZFR had prior successes selling prior companies (for $285m Tiberon Minerals and for $52m Keeper Resources - albeit not in gold/silver).
I've owned, but never dug into the financials until I received the management circular this past week. I was surprised, in a good way, to see that Loren (CEO) and John Clark (CFO) actually take $0 salaries and have done this for 2017, 2018 and 2019 (I have not dug into prior years before this). In other years, and also just last Friday, they do receive stock options, but once again, the amounts I see are extremely fair, and on the very low side of what I've come across in this sector.
2. Funded initial drill program
Good timing, that Zephyr did not wait til the March crash - the company raised cash via PP on Feb 18 and it closed 3 days later.
HALIFAX, Feb. 18, 2020
/CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company") (TSXV: ZFR)
(OTC: ZPHYF), is pleased to announce it intends to issue, by way of a
non-brokered private placement, up to 10,000,000 units at a price of $0.21 per unit for gross proceeds of up to $2,100,000
("Private Placement"). Each unit consists of one common share and
one-half warrant of the Company ("Unit"). Every two one-half common
share purchase warrants of the Company entitles the holder to acquire
one common share of the Company for $0.35 for a period of eighteen months from the closing date.
The funds will be good for the first several holes - and if successful, I'd suspect the company would come back to the market to do additional work in the somewhat short drilling season from July to October.
3. Large insider ownership
40% owned by insiders and associates.
However, there has been a fund that has been liquidating quite heavily (Oakrun Precious Metals Fund, Ltd. - in Official Liquidation3 - 10% Security Holder of Issuer Direct Ownership ) which has sold approximately 800,000 shares in the past several weeks - once the selling pressure stopped from the fund, ZFR's stock did run quite hard to last Friday's close at $0.285. Prior to this, it was capped at $0.22 then $0.24, prior to stopping. Nonetheless, they are still owners of approximately 10.5 million shares + warrants.
Perhaps it's luck on my part, that I was able to pick up my entire position at $0.22, likely from Oakrun.
4. Broken Hill Target - The Story
2019 was a year when Dr Spry came into the picture, the new target became clear, the company mobilized to collect the data to support the theory and 2020 will be the year to prove it out. So far, we're checking the boxes which leans to the theory being correct.
HALIFAX, April 15, 2019
/CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company") (TSX-V: ZFR)
(OTC: ZPHYF) is pleased to announce its exploration plans for 2019 at
its Dawson-Green Mountain property in Colorado, U.S.A. With the additional land acquisition in the fall of 2018 and a newly leased 259 hectare (640 acre) parcel from the State of Colorado,
Zephyr now controls a mineralized trend that is over 12 kilometers (7.5
miles) long. Zephyr's new geological model developed with the
assistance of Dr. Spry suggests that the genesis of the mineralization
at Dawson-Green Mountain is similar to
the Broken Hill-type lead-zinc-silver deposits. This model was developed
from the Broken Hill ore body in Australia.
Broken Hill was one of the largest ore bodies ever discovered. It
contains approximately 280 million tonnes of high grade lead and zinc
(approximately 18% combined) plus silver credits. Broken Hill is only
used as a deposit model and is not necessarily reflective of the
mineralization that may be hosted on Dawson-Green Mountain property.
HALIFAX, June 28, 2019 /CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company") (TSXV: ZFR) (OTC: ZPHYF) is pleased to announce it has executed a service agreement with Balch Exploration Consulting Inc. for an airborne magnetic and electromagnetic geophysical survey over the Dawson-Green Mountain property in Colorado, USA. The Dawson-Green Mountain property encompasses a large mineralized system which trends east-west and is over 12 kilometers (7.5 miles) long. The geophysical survey will be flown on north-south lines spaced at 100 meters (328 feet).
HALIFAX, Sept. 10, 2019
/CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company") (TSXV: ZFR)
(OTC: ZPHYF) is pleased to announce it has received preliminary data
from the recently completed airborne magnetic and electromagnetic survey
("AirTEM") performed by Balch Exploration Consulting Inc. ("BECI") over
the Dawson-Green Mountain Property (the "Property") in Colorado, USA.
A distinct 2.4 kilometers (1.5 mi) long magnetic anomaly located
immediately south of, and paralleling the mineralized trend (trend dips
approximately 60 degrees south) has been identified on the El Plomo
section of the Property. This anomaly strengthens and widens from the
west at approximately 100 nanoTeslas ("nT") to over 300 nT in the east
(See map below). Broken Hill Type silver-lead-zinc (Ag-Pb-Zn) deposits
can be very magnetic so this anomaly is considered to be a high priority
exploration target for drill testing.
HALIFAX, Nov. 19, 2019
/CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company") (TSXV: ZFR)
(OTC: ZPHYF) is pleased to announce it has received results from the
geophysical 3D inversion modelling of the El Plomo magnetic anomaly
discovered during a recently completed airborne survey.
5. The Evidence - The most important part of the rationale!
Magnetic Anomaly
Historical shallow holes, GC-8/GC-9 have already hit Silver-Lead-Zinc, in old historical holes drilled 30+ years ago. They drilled only shallow holes and never did magnetic surveys. At the time, the property owner also hit gold elsewhere on the property and basically just left the lead/zinc/silver alone to focus on the gold discovery.
Why is a historical hit important? The company states that GC-8/GC-9 core is highly magnetic. So a highly magnetic anomaly directly underneath the strongest part of the anomaly is very exciting. The anomaly is also elephant-sized at 400m x 250m, which is a lot of space for potential mineralization.
It doesn't seem farfetched to me, that since the old explorers only scratched the surface with 100meters - that the mineralization could very well go deeper - the question is does it coincide with the mag anomaly? My bet is that it does.
Or, read it in the company's wording.
Per the company's news released April 16, 2020:
The western magnetic anomaly sits directly beneath two shallow
historical drill holes, GC-8 and GC-9. Drill hole GC-9 intersected 8.2 m grading 5.3% Zn from 55.6 m to 63.8 m, including 2.5 m grading 10.2% Zn from 61.3 m to 63.8 m*. A deeper section in GC-9 intersected 0.65 m grading 179.0 g/t Ag, 1.2 g/t Au and 2.6% Pb from 85.82 m to 86.47 m*.
The high grade zinc and silver-lead mineralization in these intervals
are magnetic due to the presence of pyrrhotite and magnetite. Surface
and drill hole data from GC-8 and GC-9 indicate the dip of the
mineralized trend near surface is 60 degrees to the south.
Interpretation of the 3D inversion magnetic data indicates the structure
changes dip from 60 degrees south near surface to 85 degrees north at
depth, a change of 35 degrees. This suggests a structural fold which
could potentially host thick intervals of silver-lead-zinc
mineralization. This interpretation is supported by the structure of the
gold mineralization in the eastern Dawson section where a low amplitude
fold (dip change of 15 – 20 degrees), hosts a gold mineralized zone
which thickens from 1 m at the edges of the fold to a maximum of 15 m
in the center or fold hinge zone. The magnetic trend being tested on El
Plomo stretches for approximately 2.5 km along the 3.2 km mineralized
trend. This 3.2 km trend boasts 31 surface prospects, and two additional
discrete magnetic drill targets, the central and eastern anomalies.
Drilling success on the western anomaly would immediately upgrade these 2
drill targets to very high priority.
From the company's presentation, the drill-target for this anomaly is identified below.
The cross section which has the 400m x 250m target is merely a portion of a trend. If the company does indeed hit what they're looking for on this cross-section, they'll expand to go after the other mag anomalies along the trend:
Previous historical mapping has shown El-Plomo section to be mineralized - along most of the trend.
Similar Rocks
www.zephyrminerals.com - Have a look at their corporate presentation for rock comparisons between Broken Hill and El Plomo
Similar Geology
Even more evidence... rare silver mineral. Announced May 5th, 2020
HALIFAX, May 5, 2020 /CNW/ - Zephyr Minerals Ltd. ("Zephyr" or the "Company")
(TSXV: ZFR) (OTC: ZPHYF), is pleased to announce that it has discovered
the silver in historic drill holes GC-8 and GC-9 is hosted by the same
rare silver mineral that is host to the silver at the Broken Hill and Cannington silver-lead-zinc mines in Australia, as well as a silver enriched variant.
Petrographic studies coupled with electron microprobe analyses has been
completed on silver-lead-zinc mineralization from the massive sulfide
zone along the Dawson-Green Mountain ("DGM") trend by Dr. Paul Spry, Economic Geology professor at the University of Iowa and Zephyr's technical advisor. Dr. Spry is a world-renowned expert on Broken Hill Type ("BHT"),
silver-lead-zinc deposits. Results of these studies show the DGM trend
is dominated by the metallic minerals sphalerite, pyrite, chalcopyrite,
galena, magnetic pyrrhotite, magnetite, and gahnite. The magnetic
anomaly associated with the DGM trend is related to the presence of
magnetite and magnetic pyrrhotite. At the Cannington mine in Australia
(a BHT deposit) the deposit's magnetic signature is primarily due to
the presence of magnetite and minor pyrrhotite in the silver-lead-zinc
mineralization.
The stock really did respond well to this news moving 35% last week - perhaps a combination of OakRun selling which seemed to stop plus another check-box on why we could have an elephant silver-lead-zinc deposit to be discovered in El Plomo.
6. Ready to drill / Heavy lifting completed
2019 was a year to run airborne geophysics + 3D inversion model, which yielded in some very nice targets. This year the company will drill to prove out the theory.
Drilling is likely to commence in perhaps 8 weeks (beginning of July) - I would expect the company to let shareholders know via a news release when that's done.
There are restrictions for them to start drilling earlier due to local mountain goats, so hence drilling cannot start until July.
7. Pre-discovery; with a Plan B
For a Broken-Hill type potential, Zephyr is definitely trading at a pre-discovery valuation. Remember, the mining behemoth BHP (Broken Hill Proprietary) was started because they found a deposit-type now known as Broken-Hill Type, which was rich in silver, zinc and lead, and massive in size, coming in at 280 MT.
So what if this target does not meet expectations? Well the company would simply go back to additional gold exploration (which they've already announced have field-work planned for the summer regardless). The gold space is getting hot, and juniors are not quite 'hot' yet, but I think will undoubtedly benefit from the run in the coming months.
Plan B is really quite nice, as I mentioned earlier in the article...
Dawson does have a PEA of it's own
merit with 371,000tonnes at 10.09gpt Au for 120,400oz, with a Pre-tax
IRR of 66%, NPV of $46.7m CAD at $1250 gold prices (much higher now with
gold at $1700). The deposit is open for expansion, and prior to 2019, it was the company's main focus. So far a small deposit, but I'd have to say some very good grades + previous mining operations on the property in the past.
Closing
Zephyr Minerals is one compelling story which has all the heavy-lifting done, is drill ready and we should know in a few months weather we find a potential elephant deposit or not. The upside potential in my view, would be many multiples higher (I'm not looking for a 2x or 3x gain here).
There's a long list of geological reasons, with the magnetic anomaly, 3d-inversion models, historical drill core in GC-8 and GC-9 (same rare silver mineral) - that point to the theory of a Broken Hill type deposit existing at El Plomo to have a solid chance to be true, in my view.
As I own stock - you can bet what my view is on this exploration target!
Will Felderhof, executive chairman of Zephyr Minerals does an excellent 4-minute pitch in the following video: https://www.youtube.com/watch?v=zuPo6C1qChA
As a reminder; junior exploration is
very risky - I remind you to read the disclaimer once more.
Hope you enjoyed the article -
please let me know if you have any feedback/comments. My contact information is
above.
Disclaimer:
The author is not a registered
investment advisor, currently has a long position in this stock. The author has
not been paid by anyone to write this article. All facts are to be checked by
the reader. For more information go to https://www.zephyrminerals.com/ and read
the company’s profile and official documents on www.sedar.com,
also for important risk disclosures. This article is provided for
information purposes only, and is not intended to be investment advice of
any kind, and all readers are encouraged to do their own due diligence, and
talk to their own licensed investment advisors prior to making any investment
decisions.