Welcome to the Impact Silver HUB on AGORACOM
Focus: Silver Exploration, Production, and Growth
Message: Mexico Mike article on IPT from 2006
I wrote this article last year, and it was published in Investors Digest as part of my Mexico Mike column. I think it still provides a good overview of the company for anyone that is being their own DD.
I did not receive any form of compensatation by the company to present the information. Earlier this year, IPT became a paid advertiser on my website. I do not have any relationship with the company and do not represent it with investor relations. Please consider my comments to be my own opinion...
cheers!
COACH247
Mexico Mike
Exceptional exploration potential makes this Mexico junior special
Mining veterans will tell you that the best place to look for a new deposit is right alongside an old mine, and there are good reasons for this view. Favorable conditions that contribute to the emplacement of one deposit will often extend across a wide area, well beyond the limits of the original mine workings. Also, as the information on geological structure is better understood from working an ore body, this could assist the interpretation of exploration data, and improve the discovery odds in the surrounding district. One should also note that mining technology today is far more advanced than the practices that were common even fifty years ago, and since many past producing mines date back centuries, it should come as no surprise that a modern exploration and development program can often transform an old district into a productive operation with strong economic potential. So the risks are much lower for companies to acquire under explored property assets where historic mines were once in operation. None of this comes as a surprise to the management team of Impact Silver Corp, who have taken on an entire mining district with a history spanning hundreds of years of mining. The company came out of nowhere in June 2004, with the announcement of a purchase option to acquire the Royal Mines of Zacualpan project in Central Mexico. Subsequent purchases secured control of a Mexican subsidiary company along with ownership of a nearby mill and recovery plant. Additional staking of the surrounding lands provided Impact with a 100 percent interest in a total property area amounting to about 125 square kilometers. Complementing this jewel of an acquisition, the company currently has two producing silver mines in operation, and regional exploration work has identified more than 100 former mines and shallow workings on the massive property holdings. If there is an issue with securing a drill contractor in Mexico during this bull market, don’t tell company President Fred Davidson about it. Davidson also serves as President of Energold Drilling Ltd, and Energold is also the largest shareholder of Impact. Suffice to say that Impact management does not have a great concern about gaining access to a drill and a crew to run it. And that is important because with the inventory of exploration targets the company has identified, there will be a lot of drilling work to come in the years ahead. As an illustration of just how prospective the past mine workings are for new discovery, consider that in 2005 the company launched its first limited exploration program, and was successful to hit silver mineralization in every drill core. This included one intercept that graded an eye-popping 27,793 g/t silver and 3.4 g/t gold, along with high-grade zinc and lead values. Additional drilling completed in subsequent programs has returned further encouraging results. While the exploration targets are impressive, development of the currently producing mines is the priority at the present time. Impact was able to buy the project on very favorable terms because the former operator of the mines had basically run them into the ground, if you will excuse the pun. Limited capital resources and poor management are not the precursors for success in the mining game. So a great deal of time and money has gone into underground infrastructure improvements, and refurbishing the equipment at the recovery plant. This kind of work is less impressive than spectacular exploration results, so the share price for the company has languished. The mill is capable of processing about 500 tonnes of ore per day, yet only about 200 tonnes of throughput is currently running on a daily basis. The operational makeover is nearing completion however, and the production level is expected to begin ramping up into 2007. Impact management decided to run lower grade ore during the first quarters of production after they gained control of the project. The former operator had been mining only the highest grading ore from the deposit and a large volume of marginal mineralization had been bypassed as a result. Before advancing development work to open new zones of rich silver ore, the company went back to clean up the remnant lower grade material. However, even with the limited production of low-grade material, Impact was still able to surprise the market in the most recent quarter by reporting a modest net profit. So the future looks very bright indeed for this little company. Development work has now opened a large tonnage of higher-grade ore to feed the mill. And the mill itself has been upgraded to generate improved efficiency from operations, while the overall tonnage of production is increasing. Add in the strong market price for silver and base metals, and there is ample reason to be very optimistic that Impact is capable of reeling off several strong quarters of growth and profits. But the company is not going to just ride the success of one project. It recently announced the acquisition of the Veta Grande Silver Project in the prolific Zacatecas mining district. This acquisition includes four property claims with an application for a fifth property. However, the key to the deal is a modern mill and recovery plant that is currently generating revenues from operations. The terms for the acquisition allow the current owner to retain control of the mill until a period of 18 months has passed, and Impact is entitled to 25 percent of the revenues from the mill during that period. Custom milling is currently underway, generating revenues and the company plans to invest its share of this cash flow back into capital improvements for the mill. Shortly thereafter, Impact announced the several more attractive acquisitions in the Zacatecas district to bring its holdings to a total of 7 properties, and then a joint venture partnership was signed with junior explorer Yale Resources allowing it to earn an interest in three of those projects in exchange for cash and exploration work commitments. Impact plans to complete the earn-requirements for the Veta Grande Mill, and will own an undivided interest through which any new ore body discovered on these projects is likely to be processed, so there are back end advantages to the deals as well. It is a prototypical example of the low risk approach that Fred Davidson has employed to build value for shareholders. There are also additional attractive opportunities to pursue in this area as the company builds relationships with the smaller independent mine operators who will be using the mill on a contract basis. This could contribute to future growth potential for the company. One appealing aspect of Impact is the tight share structure, with only slightly more than 38 million shares currently outstanding, and less than 49 million fully diluted. That ensures shareholders will have strong leverage as the company grows earnings, and it should support a much higher share price in the future. With the revenues flowing in from operations, the company will not have to issue a great deal of share capital in the future in order to raise the funding to meet their objectives. Throughout this rapid growth curve, Impact management has stuck with their core values to operate the company with a bias to conservative targets and financial stability. The company has a clean balance sheet, with a well-funded treasury and no long-term debt. This platform will enable the company to move forward with its objectives to conduct systematic exploration in order to develop new resources at Zacualpan, and increase total production to take full advantage of the bull market conditions. Impact Silver is exactly the kind of company that the Mexico Mike Portfolio was created to exploit. There is tremendous asset value to be developed, and the company is fully leveraged to the upside ahead in a resource bull market, yet the overall risk going forward is much lower than the sector as a whole. So few junior mining stocks are able to post a net quarterly profit at this point in the cycle, and to find one like Impact that is so cheap in terms of market capitalization relative to its peers, represents a compelling investment opportunity. I buy a $10,000 allocation for the portfolio.Mike Kachanovsky
4 Recommendations
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