Ann: Quarterly Activities/Appendix 5B Cash Flow Report, page-24

Nice to see an unsponsored article with Rick Rule on his views on silver and the Bowden's mine. Link to article is https://shorturl.at/w1QYh

At Stock head, we tell it like it is. While Mithril Resources, Maronan Metals, Argent Minerals and Sun Silver were * advertisers at the time of writing, they did not sponsor this article.

One Rick to Rule them all: Why being ‘hated’ makes silver a buy for mining legend

Legendary North American mining investor Rick Rule raised some eyebrows Down Under a couple weeks ago when a firm led by him, third generation Lundin Mining dynasty member Harry Lundin and Canadian hedge fund MMCAP emerged as the backer of a ~$30 million funding deal for Aussie silver developer Silver Mines (ASX:SVL).

The convertible note issue will see their company Bromma Asset Management tip $30.2m in to bankroll drilling and definitive feasibility study work on the Bowdens silver deposit 30km east of Mudgee in New South Wales.

Discovered in the 1980s and held by SVL since 2016, at the back end of a major collapse in precious metals prices, stars have aligned in recent times for the stock after it achieved Independent Planning Commission approval from the New South Wales Government last year, one of two deposits along with Regis Resources’ (ASX:RRL) McPhillamy’s gold project to bat off years of legal challenges and receive that accreditation in 2023.

Silver prices also hit multi-year highs upwards of US$30/oz, before hitting turbulence around those levels in the past few weeks, a few years after internet weirdos tried to pump the metal known as gold’s ‘poor cousin’ in the famed and failed #silversqueeze.

We hit up Rule to talk about the investment, a senior secured debt which at 22.5c (a roughly 35% premium to the current share price) can convert into stock in SVL, and why he thinks silver is going higher still in the years ahead.

Why it’s good to be hated

Rule is a contrarian investor. That means that rather than running on momentum his aim is to get in early on sectors that are out of favour.

Silver has long been one of those, even as demand has risen for its use in electronics and solar panels, as well as investment and jewellery.

“I don’t know that 2024 is the year.

“Because I’m a contrarian, I’m usually early. So if I get involved in 2024 probably the market moves in 2026, that’s just the way it works.

“I like sectors that are hated.

“And January-February of 2024 there was a visceral hatred for junior silver stocks.

“You’ll recall the Reddit silver squeeze in 2021-2022, that didn’t work, but there was a whole new generation speculators that fell in love with silver, and there’s no hate as sincere as the hate of a jilted lover.

“So there was a whole new generation to hate silver, and they were particularly vociferous online where they live. And that hate attracted me.”

Rule regards silver stocks as a ‘coiled spring’.

“I cut my teeth in the business in 1970 and between 1970 and 1981 the silver price advanced, in US dollar terms, from a buck and a half to 50 bucks,” he said.

“But the equities (laughs heartily) did better. One Coeur d’Alene Mines, sadly without me owning a share, went from 10 cents to $65 – in Australian a f***ing rump, you know.

“And in the little silver cycle we had in the early 1990s I financed a couple of companies, Silver Standard Resources and Pan American Silver at 72 and 50 cents, respectively.

“In six years, they both went to 45 bucks, and so I was sort of hooked buying silver, and in particular, well run silver juniors when nobody cares, and then being a pawn broker giving it back when everybody starts to care.

While gold is the traditional headline maker in precious metals bull runs, cheaper priced silver tends to run harder and with more ferocity.

“I don’t know really why silver moves, I’ve thought about it for 50 years, but I do know precious metals bull markets are led by gold,” Rule said.

“The fear narrative is what kicks off a precious metals bull market.

“I have observed that maybe midway through a precious metals bull market when the narrative has been established for the generalist investors, silver takes over leadership.

“When it does, it moves further and faster than gold and the most constrained asset class are the high quality silver juniors, because there’s not very many of them.

“And when the generalist investor decides to come into that space, that silo, those combined market caps aren’t big enough to hold the money and you get these stupid up moves.”

Silver Mines – a history

Bearing in mind gold has been on a general upswing since the early 2000s, Rule thinks we are in the early stages of a precious metals bull run, with inflationary pressure putting the real yield of the US dollar at -3% in his calculation, despite the recent hike in interest rates.

“I believe that the silver stocks are going to give us at least one more goofy time in my life, and at age 71 I’d like to see it happen once more in my life,” he said.

“So that’s my silver thesis. It’s pretty much all about greed and larceny.”

But why, linking up with a third generation of the Lundin family after doing business with previous partiarchs Adolf and Lukas, does Rule think an Aussie small cap is one place to play it?

Turns out, Rule has plenty of history with the deposit.

“That discovery, Bowdens, was discovered by a great friend of mine in Australia who I used to invest with many years ago, named James Askew,” Rule said.

“There was no market for silver projects in Australia in 1990, because (South32’s) Cannington had just been discovered, one of the greatest of all deposits and nobody cared.

“Everything was out of favour. Australia was on a 90%-off sale then, there was no money in the country. And so we took what was a pretty good deposit and sold it to Silver Standard, who I had financed.”

Silver Standard eventually sold Bowdens for $75m in cash and shares to Kingsgate Consolidated in 2011. It was bought in a $18m + $2m deal by SVL in 2016.

The most recent resource update, completed in 2023, comes in at 200 million tonnes at 62g/t silver equivalent including 29g/t Ag, 0.37% Zn, 0.26% Pb and 0.07g/t Au for 396Moz AgEq.

Rule thinks tighter drilling to refine and improve the confidence in the resource base will boost the value proposition. While the resource itself is considered Australia’s largest undeveloped silver find, Rule acknowledged the more complex regulatory environment in New South Wales than the mining States of Queensland and WA.

“I’ve been to site and Mudgee is wine-sipping territory,” he said.

“I’m always concerned about trying to build a mine in a place where they spell shop, S, H, O, P, P, E.

“I must say that the area was scenic enough, and there was enough tourist activity in the town that political approval was important to me.”

But with IPC approval in and legal challenges batted away in April, Rule said metallurgy will be the big focus for the project’s future success.

“I think the deposit will be easy enough to mine. I had process concerns around the copper, the rubbing solution,” Rule said.

“I would say a bigger concern of mine was them solving the process and metallurgical challenges around the deposit.”

He said the fact the mine would be in Australia made it attractive as an investment proposition, given potential jurisdictional challenges posed in major producers Mexico and Peru.

“If the silver narrative comes into play in the next couple of years, which I think it will, I think this company will trade at a substantial premium other silver juniors, simply because of the applicability that it has in the Australian market to people who are interested in the silver narrative.”

Other ASX silver names

While Silver Mines does what it says on the tin, there are plenty of other companies on the ASX also searching for the precious metal or boasting existing deposits prepped for if the silver bull run finally happens.

Jess Cummins covered the major Aussie silver names in this wonderful feature last week, including fellow Aussie deposit owners Maronan Metals (ASX:MMA), which boasts a lead-silver resource in North Queensland not far from the world-class Cannington operation of 32.1Mt at 6.1% Pb and 107g/t Ag.

READ: From rags to riches: Experts eye ASX silver plays as deficit grows

Also in NSW, Argent Minerals (ASX:ARD) boasts the 142.8Moz Kempfield deposit. Polymetals Resources (ASXOL) also owns the advanced Endeavour mine in the Cobar region, a previous producer, while Investigator Resources (ASX:IVR) has spent a number of years assessing the feasibility of its Paris project near Kimba in rural South Australia.

Overseas silver juniors listed on the ASX include Nevada focused Sun Silver (ASX:SS1), Eric Sprott-backed Argentinian focused Unico Silver (ASX:USL), Mexican explorer Mithril Resources (ASX:MTH), holder of the 373,000 oz gold and 10.95Moz silver Copalquin project, and the Richardson Group’s Andean Silver (ASX:ASL), which holds the high-grade Cerro Bayo project in Chile.

At *, we tell it like it is. While Mithril Resources, Maronan Metals, Argent Minerals and Sun Silver were * advertisers at the time of writing, they did not sponsor this article.