PMY - SILVER INVESTORS DREAM at start of BULL RUN

Great article by shareholder Brett Connolly.V

Pacifico Minerals research summary - 2 August 2020 Brent Connolly.pdf

Pacifico Minerals Limited (PMY: ASX), By Brent Connolly

Sorby Hills andEight Mile Creek – Outstandingly economic institutional quality investmentgrade development and a “Silver Speculators” dream

With the silver price having its biggestweekly rise in 40 years there is a mad scramble by investors and brokers todetermine the best options for silver exposure on the ASX. https://www.*****.com/commentaries/2020-07-27/Gold-Swot-silver-s-biggest-weekly-gain-in-40-years.html

The options are limited.

A ten year bear market has left lowstockpiles of minerals and metals with few projects in the Australian andglobal pipeline, with major silver producing countries such as Mexico havingexhausted several of the super mines that ran for centuries. Sustained lowprices have made most potential sources of supply uneconomic, unless the silveris available to be mined with other metals.

At the current share price of 1.5c, PMYwith its Sorby Hills project in north Western Australia is the best risk rewardsilver developer investment on the ASX. It presently screens cheaply at around50% of its Australian peers on an EV/Silver Equivalent Oz’s basis (fully diluted).

At the current market capitalisation of$43.32 M the market is placing a value of $1.07 Oz of its silver resource, novalue for lead and zinc, and no value for exploration potential.

Herelies the opportunity.

PMY has the potential to use its lead andzinc resources to fund the cost of capital and mining and extract silver for“free” making every dollar of silver price appreciation from today’s prices pureupside. PMY also has the greatest exploration upside potential of any of itsdevelopment peers in Australia and is perfectly placed to capture the benefitsof the commodity price up-cycle that has only just commenced.

It’s an outstandingly economicinstitutional quality investment grade development and a “Silver Speculators”dream.

Why?

It’sin one of the best mining jurisdictions in the world, Tier 1 Western Australia, with all key approvals already secured and close to existing infrastructure.

Ithas the second biggest silver resource in Australia at 54 Million Oz’s (75% to PMY, 40.4 Million Oz’s) of the developers and explorers,see Table 1.

Ithas the highest metal grade of the Australian developers and explorers at 121g/t with a total resource of 171 Million Oz’s Agequivalent (75% to PMY, 128.4 Million Oz’s), see Table 1.

Table 1

Ithas material infill and extension drilling and exploration upside at Sorby Hills (75%) and the adjacent and much larger lease, EightMile Creek (100%).

It’soutstandingly economic. The Sorby Hills depositis large and near-surface with simple well understood metallurgy. The lead-silver-zincis of a high-grade, which lends itself to simple,efficient processing, producing high recoveries and high quality concentrate.This together with the shallow open cut mining required produceshigh operating margins.

The Pre-feasibility Study in March 2019 onSorby Hills delivered a NPV of $243 Million (100% of project) and a pre-taxinternal rate of return of 62%, with a less than 2 years payback https://www.asx.com.au/asxpdf/20190326/pdf/443s18x30p0q5c.pdf

……..and that PFS is on the cusp of being Optimisedthis month to include material additions to its resource base and the resultsof major developmental work undertaken since then. Expected capex is modestrelative to other developers and described as “doable” by Euroz in its researchreports. https://www.asx.com.au/asxpdf/20200430/pdf/44hdc7v717px0t.pdf

It’s an investmentgrade project with a potential long life, which can generateprofits at low commodity prices and make stellar profits at high prices. Highgrade material quantities of metal means that the project does not demand ahigh silver price (> $40 USD) constantly to be economic. As an investmentPMY has low relative risk with high commodity prices producing potentiallymassive upside. It’s a thoroughbred stayer.

Canny brokers and analysts know that few primary silver mines arehistorically long term profitable, however, base metals plus silver have a longtrack record of delivering silver price optionality on top of strong lead andzinc earnings.

It has thepotential for free silver optionality. Depending on theoutcome of the Optimised PFS, the quantity, grade andprice of the base metals, lead and zinc have the potential to cover all thecapital and mining costs, making the silver production effectively “free”. Thefocus for investors then becomes the amount of silver Oz's produced per year and,in a rising silver price market, the amount of silver Oz’s in the ground, thoseidentified and the exploration potential. As the market applies its weighing machine function, PMY’s “free silver optionality” will increasingly get priced in.

But thereis a deeper strategic upside. PMY is perfectly positioned to capture commodity price growth from the favourable price outlook now impacting all USD denominated hard commodities, lead and zinc included.

TheKing USD cycle is over. While the USD isrising commodities are psychologically linked to it and are not free to rise tothe natural price set by innate supply and demand. But, when that cycle is overthe gravity headwind inverts and becomes a tailwind. If you look closely thereappears to be a stealth rally underway in lead and zinc, the prices of whichare inching higher. With the DXY at 93.4 the USD has stopped being the foot onthe neck of all metals.

Goldis a currency. Silver is a currency whenever it goes into a bull phase. The fact that the USD gold price has risen so extremely in the pasttwo years despite a rising USD should tell you everything that you need to knowabout the future direction of gold and silver now that the USD has commencedfalling.

The position of silver is better as it isonly now entering the bull market, it is three years behind gold and PMY is perfectly placed to capture all curvesas they inflect higher, the commodities of lead and zinc and the currency,silver.

Plenty has been written about the goldsilver ratio being at historically high levels, currently at 81. As that lowersthe silver price will rise faster than gold. That does not mean we will go to aratio of 20 overnight, but it means that the price of silver tends to riseextremely sharply.

If you like to talk in waves, we arecurrently at the start of a new wave cycle, say wave 1 of a multi wave series.These waves are part of massive global cycles and it will take time for thefull wave to rise up………..

……precisely like a tsunami, all you see atthe start is the first tide rushing out (March 2020), then you start to seelittle ripples in the water moving toward you (July 2020) then the water rises to your ankles, waist and throat………….

…….and finally you’re getting swept throughthe streets wondering how you didn’t see it coming. https://hotcopper.com.au/members/goldbear77.136306/

Ithas institutional scale. Better yet there is potential for multiples of that existing scale at Sorby Hills and with a newly acquired, geologically similar, adjacent and materially larger exploration tenement at Eight Mile Creek. https://www.asx.com.au/asxpdf/20200421/pdf/44h3h78hlgv9pt.pdf

Infill and extension drilling of SorbyHills has consistently delivered a high conversion rate of inferred resourcesto indicated, with further drilling and geological understanding expected to confirmsignificant potential to grow the deposits which are open in most directions. https://www.asx.com.au/asxpdf/20200602/pdf/44j9w99y4ch30g.pdf

It’s the only one of its natural Australianlocated peers to have meaningful decent grade silver drilling success of recenttimes. That means PMY is not just reliant on existing silver resources but hasthe potential to materially growrecoverable silver Oz’s………and if that silver production can be “free” becausethe costs of the mining are met by base metals, you have the silver speculatorsdream………

PMY has the potential to be a monster miner.

SorbyHills has a 25% capital contributing and offtake joint venture partner in HenangYuguang Gold & Lead Co. Ltd which operates the biggest gold, silver and leadsmelter in China. Its appetite for silver will be driven by the macroeconomicfactors discussed, but it is also seeking a clean lead-silver concentrate freefrom deleterious elements to offset the closure of a number of lead mines inChina. Looking at their March 2020 quarterly, they would appear to have plentyof capacity to fund capital and offtake with AU $386M in cash and cashequivalents available.

Andjust in case you are worried about China, just this week economic data showedmanufacturing activity has risen https://www.msn.com/en-us/finance/markets/chinas-manufacturing-recovery-picks-up-the-pace/ar-BB17oG5PandHenang Yuguang recently confirmed that they are back atpre-COVID levels of production.

On 29 June 2020 PMY appointed BurnVoir a Sydneybased financier to manage the Competitive process for Sorby Hills funding.There is multiple party interest for OFFTAKE and FINANCING and COMPETITION forboth. Makes complete sense because the economics of this project areoutstanding. The recent announcement by Galena Mining Limited that it hasachieved funding for its Abra project in WA provides extra confidence thatfinanciers are actively seeking projects like Sorby Hills.

PMYhas a strong management team that has consistently delivered against key milestones. The recent appointment of highlyexperienced Gary Comb as Executive Chairman, who was previously with JabiruMetals & Finders Resources and an engineer with over 30 years’ experiencein the Australian mining industry, with a strong track record in successfullycommissioning and operating base metal mines is a big win and highlights thatPacifico Minerals is moving strongly forward towards production and worthy ofbeing put on the radar of potential investors and speculators.

The top 5 shareholders as of March own38.59% and management hold an additional 2.9%. The top 20 shareholders hold 52%of issued capital.There has been solid insider buying in recent quarters with Managing DirectorSimon Noon, Executive Chairman Gary Comb and Director Richard Monti and also sometop 20 shareholders all making on market purchases.

PMYis heavily backed and supported by a number of High Net Worth miningaffiliated and industry wide recognised leaders, very unlike your usual top 20for a junior, including –

• Paul Brosnan ‘Villiers’ 12% on headswith 15% of options. Based in QLD, investor

• ‘Zero Nominees PL’ on behalf of Eurozclients circa 5%

• Tony Poli ‘Aigle Royal Super’ 5% onheads with 20%+ of options. Tony sold Aquila in one of the best-timed and mostsuccessful transactions of the past decade netting $400 M.

• Kerry Harmanis 2-3% who sold Jubileemines for $3 Billion, netting himself $500 M.

• Grey Egerton Warburton ‘BudworthCapital’ 1-2% who helped make Hartleys successful before creating his own firmBudworth Capital.

• Dr Salim Cassim Industry recognisedinvestor in small capped resources with an eye for investment. A part of therecent run in Hylea from .8 to 5c.

• Quintana Minerals Corporation circa4%, whose main focus is to provide capital to producing or near term producingmines. Became a shareholder in 2018 when PMY acquired the Sorby Hills project. http://www.quintanaresources.com/about/

PMYhas plenty of near term catalysts.https://www.asx.com.au/asxpdf/20200611/pdf/44jkd2p4s0jpdt.pdf

Quarter 3 2020 will see the completion ofthe Optimised PFS (due August) and updated ore estimates.

Quarter 4 2020, DFS and expansion drilling.

Quarter 1 2021 Definitive Feasibility Studyand Offtake and Financing process.

Quarter 2 2021 Decision to mine.

What’s not to like?

I am a shareholderof Pacifico Minerals and acting independently from the Company in writing thisresearch report.