Golden Arrow Resources (GRG.V) saw its share price spike in April and almost touched the C$0.50 per share, which is approximately 150% higher than the company’s share price as of at the end of 2014. That’s an excellent performance supported by another batch of good drill results and the fact that the CEO of neighbor Silver Standard Resources (SSRI, SSO.TO) said that it would be interested in buying new projects.
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The new drill results continue to expand Chinchillas
We had a chat with VP Exploration Brian McEwen to get a better understanding of the most recent drill results at Chinchillas. Hole 166 was an eye-opener as the Socavon zone was deemed to be a more complicated zone.That’s also the reason why there were no indicated resources yet on the property and all of the 27.5M silver-equivalent ounces were part of an inferred resource estimate.
It was really refreshing to see a relatively long intercept running almost 3 silver-equivalent ounces per tonne of rock.
The 16,000 meter drill program is currently being halted until all assays have been thoroughly analyzed which will very likely lead to an updated drill plan. Approximately 11,000 meters have already been drilled, which means Golden Arrow has approximately 5,000 meters to drill as part of the current program. We expect the drill program to resume in the next few weeks and continue throughout the summer.
A 200Moz AgEq resource estimate should draw some attention
After the current drill program will have been completed, Golden Arrow Resources will complete an updated resource estimate that will very likely be used as the basis for a pre-feasibility study on the project.
Based on the recent exploration success at Chinchillas, we would be surprised if this updated resource estimate would contain less than 200 million silver-equivalent ounces. When putting this number on the table in our conversation with VP Brian McEwen, he didn’t say our number was out of reach, so for now we’re aiming for 200 million silver-equivalent ounces which would be a 21,5% increase compared to the current resource estimate.
The total amount of ounces will obviously depend on the cutoff grade. In the current low silver price environment, it might be prudent to base the cutoff grade on a silver price of $18 or $19 per ounce versus the $22/oz they used previously.
This could have an impact on the total amount of ounces. But on the positive side, the average grade of the silver resource will increase, resulting in a potentially lower production cost due to the higher rock value per tonne of ore.
We can imagine this will trigger the interest of other players in the silver space as there aren’t a lot of large silver resources left in the world. The fact this project is located in a mining-friendly region just down the road from an existing mine that is producing more than 10 million ounces of silver per year is a very nice bonus.
Golden Arrow’s neighbor is looking to acquire new properties
We recently participated in a conference call with Silver Standard’s CEO John Smith and VP Alan Pangbourne. During that call, Smith mentioned that this would be a year wherein Silver Standard would acquire new projects rather than exploring for properties themselves.
That’s a very interesting statement as Golden Arrow’s Chinchillas project is located next to Silver Standard’s Pirquitas mine which will be running out of ore soon. Even though Silver Standard will start a small drill program at its San Miguel prospect, it would make a lot of sense to pursue a strategic deal on the Chinchillas project to secure its mill feed. If Silver Standard would have to shut down its operations at Pirquitas, it would have to spend quite a lot of cash on reclamation and rehabilitation of the mine site and plant site.
But even if Silver Standard wouldn’t be interested in Chinchillas, Golden Arrow might be taking advantage of a potential closure of the Pirquitas mine. First of all, Golden Arrow would be able to secure the best miners from a very skilled and experienced labor pool. But secondly, Silver Standard would have to sell its equipment due to Argentina’s tax laws as it cannot just take the machines and export them to another country.
Conclusion
Whatever happens, Golden Arrow Resources is in a good position to take advantage of the strong position it’s in, and if it would be the second scenario, Golden Arrow would be able to reduce its capital expenditures by tens of millions of dollars as it can buy all the equipment at a strongly reduced price.
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Disclosure: Golden Arrow Resources Corp. is a sponsoring company. Please see our disclaimer for current positions.
