This perhaps won’t be the most original remark or statement, but sometimes a project can benefit from a fresh pair of eyes that use a whole new approach to unlock value. New Nadina had a massive run about two years ago when the share price shot up from just a few cents to over C$4 (making a lot of people happy in the process), but its share price cratered just a few months later as the initial excitement waned. The company continued to trade between 5 and 20 cents ever since and appeared to be FUBAR.

This changed in August when the Manex Resource Group agreed to take the reigns at the company and overhauled the board of directors and the management team. The company was rebranded into Equity Metals (EQTY.V) with a main focus on the Silver Queen project in British Columbia.

From New Nadina to Equity Metals: the same project seen from a different set of eyes

On August 23, New Nadina’s board of directors approved a reorganization allowing the company to join the Manex Resource Group as this appeared to be the company’s only way out of the hibernation mode it had been in for quite a while.

A new management was installed, the board of directors was overhauled as well with two directors resigning and moving into consulting roles while Larry Page and Joe Kizis were taking their places. And the new team didn’t waste any time. It realized it needed to completely overhaul the structure and execute on a name change to effectively allow the company to make a fresh start.

Two weeks later, the new management announced New Nadina would change its name to Equity Metals, and a concurring C$500,000 placement was announced. This placement was almost immediately upsized to C$1M to accommodate the investor interest, and the cash will be useful to keep the balance sheet in good shape (the working capital position as of the end of May was C$100,000 and was probably turning negative by the time the Manex Group took control) while starting exploration activities on the property.

The placement was a hard-dollar raise with units priced at C$0.08. Each unit contains one common share as well as a full warrant with a strike price of C$0.12 and valid for a period of three years. A first tranche was closed in September, the second tranche was closed just recently bringing the total amount raised to C$1,050,000.

About the Silver Queen flagship project

Silver Queen is located approximately 600 kilometers north of Vancouver and about 35 kilometers south of Houston (which has around 3,000 inhabitants) and consists of 45 claims for a total surface area of almost 19,000 hectares (190 square kilometers). All claims are 100% owned by Equity Metals and aren’t just completely royalty-free, there also is an additional bonus. Thanks to the historical exploration activities on the project, all claims meet the minimum exploration expenditures all the way until November 2027.

Silver Queen Property Mineral Claims Map
Silver Queen Property Mineral Claims Map

The required minimum spend to keep the claims in good standing is now C$20 per hectare per year; so as long as Equity Metals spends around C$375,000 on exploration per year, all claims will remain in good standing. And once the company will complete its 2020 exploration program, we estimate the company will have spent enough money on the claims to keep them in good standing until 2030. That’s a clear positive as it means there’s no urgent need for Equity Metals to be overly aggressive on the exploration front.

The infrastructure around Silver Queen is actually pretty good. The project is connected to Highway 16 through 44 kilometers of an all-weather road which can deal with heavy traffic as the same road was used to supply the Huckleberry copper mine, 80 kilometers further south from Silver Queen. The Huckleberry mine (which is owned by Imperial Metals) is currently on care and maintenance and Imperial Metals (III.TO) has been working on some plans to re-open the mine but we don’t expect any progress on this front until the copper price moves back up to over $3 per pound again.

Thanks to the Huckleberry mine, there’s plenty of other infrastructure in place as Houston is also serviced by the CN rail company on the railway to Kitimat and Prince Rupert to the west and Prince George to the East. Additionally, Equity Metals has been granted access to the powerline that currently runs from Houston all the way to the Huckleberry mine.

So from an infrastructure point of view, Silver Queen is in a sweet spot with easy access to a highway, railway and power. Meanwhile, the property is far enough from Houston and other settlements to not bother anyone should any mining activities be developed.

Silver Queen Location and Infrastructure
Silver Queen Property

The Silver Queen gold-silver system isn’t a new discovery. First mineralization was encountered in 1912 and the operators back in the day immediately drifted three adits into the slope of the mountain, from which pods of a few dozen tonnes with high-grade lead-silver mineralization were shipped to a smelter. There has been some historical production since, but nothing to get too excited about in terms of volume. The grades that were encountered were spectacular though. An old resource estimate compiled in the 80’s estimated the No3 Vein contained almost 600,000 tonnes of rock at a grade of 3.4 g/t gold, in excess of 230 g/t silver, north of 8% Zn/Pb and 0.49% copper. Of course, this estimate was compiled more than 30 years ago and is per definition not up to today’s standards. But it does give us an idea of how rich the mineralized system was.

There’s one issue though that Equity Metals will have to deal with further down the road, and that’s the value of the arsenic in the copper-lead concentrate. But as most of the test work is a few decades old as well, applying more modern techniques in the flowsheet will be necessary to get the concentrate as clean as possible in order to avoid being penalized by the smelters.

But Silver Queen isn’t a virgin project. There is a recent resource estimate completed in 2019 (NI43-101 compliant, actually) based on in excess of 66,000 meters of drilling in 535 holes. About 75% of the drilled meters are from surface drill holes while the remaining 25% (211 holes) are from underground drilling.

Silver Queen Drill Hole Summary
Silver Queen Drill Hole Summary

This resulted in a total resource of 1.6 million tonnes (50/50 between the indicated and inferred resource categories) containing a total of 440,000 ounces gold-equivalent.

Silver Queen Mineral Resource Estimate
Silver Queen Mineral Resource Estimate

And yes. Defining 1.6 million tonnes with a handful of gold (149,000 ounces) and silver (10 million ounces) with a little bit of lead and zinc on top of that is absolutely not impressive for a project that has seen almost 70,000 meters of drilling. In fact, that’s pretty disappointing, which is why the project needed a fresh set of eyes to figure out how future exploration programs could be made more efficient and successful in discovering and delineating economic mineralization.

The first steps to grow Silver Queen to 1.5Moz gold-equivalent

And that’s where the experience of the people who have been designing the Cerro Las Minitas drill program in Mexico will be very useful. Rob MacDonald, Equity’s new VP Exploration, was crucial in defining hundreds of millions of silver-equivalent ounces at CLM in Mexico at a discovery cost of US$0.07 per ounce silver-equivalent as he was running a very tight exploration-ship. And the team obviously would like to replicate the Mexican exploration efficiency in British Columbia to make sure it has more to show for than a silly 1.6 million tonnes after 66,000 meters of drilling… Although we shouldn’t take this at face value (a large part of the historic drilling was meant to define a mineable reserve in the 1980s and wasn’t aimed at exploration drilling) we expect Equity Metals to be more efficient as resource expansion will be the company’s main goal.

Multiple Drill-Ready Targets for Resource Expansion

In fact, the new Equity Metals team has a two-pronged approach for Silver Queen. First of all, they want to follow up on and expand the current 1.6 million tonne, 440,000 oz AuEq resource estimate in the silver-gold epithermal vein system. The current exploration target of 1.5 million ounces gold-equivalent in the inferred category may sound ambitious, but considering the current resource already contains almost half a million ounces in less than 2 million tonnes, the high grade at Silver Queen actually means the company doesn’t really have to find a large tonnage to meet this threshold.

The No 3 vein (which was discovered a few decades ago) remains open along strike, and the potential to discover additional high-grade ore shoots still exists. Those potential ore shoots will be the main focus for Equity Metals as it realizes this is where the potential lies to rapidly expand the resource estimate towards reaching a certain critical mass.

Vein Drill Targeting

Just like at Southern Silver, the Equity Metals team isn’t too shy to put its official exploration targets in writing. It expects the NG-3 vein to hold 1-3 million tonnes at an average grade of 10 g/t gold-equivalent while the Camp Vein is estimated to hold in excess of half a million tonnes at an average grade of 1000 g/t silver-equivalent. That’s not unreasonable considering the historic resource already contains just over 200,000 tonnes at a grade of 829 g/t silver, 4% zinc and 1 g/t gold. Considering this structure remains open at depth (previous drill activities were quite shallow) and along strike, it shouldn’t be too hard to add a few additional hundred thousand tonnes.

But there’s a second exploration idea behind the Silver Queen target. Remember how the nearest mine to Silver Queen is Imperial Metals’ Huckleberry mine? That’s a large open-pit copper mine where Imperial had been mining a huge low-grade porphyry-type ore body before low copper prices made the operation unviable.

During the first 14 years of the Huckleberry mine life, a total of 870 million pounds of copper, 3.4 million ounces of silver, 105,000 ounces of gold and about 8 million pounds of molybdenum were produced. Back in 2011, the mine was expected to contain just over 250 million tonnes of rock in the measured & indicated categories so it’s needless to say this was/is a huge porphyry system. But with an average grade of 0.305% copper, the economics just don’t work.

So why is the Huckleberry mine (and the nearby Berg project owned by Centerra Gold (CG.TO) which has similar characteristics with 400 million tonnes at an average grade of 0.31% copper, 3 g/t silver and 0.034% molybdenum) an important piece of the puzzle here?

On one part of the Silver Queen project, Equity Metals has a similar porphyry footprint indicated by historical drilling in seven holes that intersected similar copper-gold-silver-molybdenum mineralization. With some of the holes containing thick layers of mineralization (for instance 248 meters at 0.49% CuEq, 396 meters at 0.43% CuEq and 207 meters at 1.05% CuEq), there are definitely sniffs of what could be a very large copper porphyry system at Silver Queen.

Of course, it’s still very early days and there’s no guarantee the size or the average grade of the project will be sufficient to warrant future development. But if the copper price would indeed go up (which is what most market commentators appear to be expecting), a lot of these ‘marginal’ projects would suddenly come into play again.

Equity Metals’ initial exploration target for the porphyry zone is 400-500 million tonnes at an average grade of 0.3% copper, 0.04% molybdenum and some gold and silver. The size and grades were very likely just ‘borrowed’ from Huckleberry and Berg, as they do represent the typical porphyry deposits within the Skeena Arch of British Columbia. That being said, at Southern Silver, the exploration targets have always been comfortably met which may indicate VP Exploration Rob MacDonald is quite conservative with his projections.

Of course, with copper trading at just $2.65 per pound, a low-grade porphyry deposit isn’t what we are looking for and we hope/expect Equity to predominantly focus on the high-grade epithermal veins to reach its 1-1.5 million ounce gold-equivalent exploration target as they have announced in their press releases.

The Team

As Equity Metals is now part of the Manex Group of companies, most of the names on the management/technical team are very familiar with Bravada Gold (BVA.V) and Southern Silver (SSV.V). President Joe Kizis is also the President of Bravada Gold, and VP Exploration Rob MacDonald also is the VP Ex for Southern Silver whose Cerro Las Minitas project now contains over 270 million ounces of silver-equivalent. This same team was responsible for the discovery and resource development of the Homestake Ridge Deposits for Homestake Resources, which was acquired by Auryn Resources in 2016.

These exploration veterans have historically been able to get quite a bit of bang for the bucks they invested in the ground both at Bravada as well as Southern Silver.

Larry Page – Chairman, Director

  • Director and Officer of a number of public prominent exploration and mining companies
  • Major Projects and Mines involvement: Penasquito, Mexico; Hemlo and Eskay Creek, Canada

Joe Kizis – President, Director

  • President, Director, Bravada Gold Corporation
  • 40yrs experience in exploration for gold, silver, copper, molybdenum, lead and zinc in BC and abroad

Rob MacDonald – VP Exploration

  • VP Geological Services, Manex Resource Group
  • MajorProjectsinvolvement: Cerro Las Minitas Project, Mexico, Homestake Ridge Project, BC

Fred Sveinson – Director

  • Director/Sr.MiningAdvisor – EquityMetals, First Vanadium; Sr. Mining Advisor – Avino Gold & Silver Mines
  • 45yrs – Exploration/development/operation of u/g mining projects; eg: Echo Bay Mines
Equity Metals EQTY

The capital structure

Equity Metals has now also closed its second and final tranche of the 8 cent equity raise. The company was able to raise a total of C$1.05M in a private placement with every 8 cent unit consisting of one common share as well as a full warrant for a period of three years and with an exercise price of C$0.12. As there are only 1.14M historical warrants with two tranches having exercise prices as high as C$3.80 and C$4.25; however, the 12 cent warrants that have just been issued could easily act as a ‘secondary financing’. There still are 1.06M historical warrants that are also exercisable at C$0.12 by September 25, 2022 (which is one month before the first 8.92M warrants of the recent raise expire).

The total amount of warrants with an exercise price of C$0.12 and expiring in Q3-Q4 2022 is now 14.2 million, and if they would all be exercised, Equity Metals would receive C$1.7M in cash proceeds.

Conclusion

Although Equity Metals has a few other projects in its portfolio, it’s clear the focus will be on the Silver Queen project where Equity can build upon an existing resource estimate. Equity’s team is now re-interpreting the historical data but is planning an initial drill program in the first half of  2020 to drill-test three targets on the Silver Queen vein system.

Now Equity Metals is re-capitalized and the fresh set of eyes of a new team will look at the project, the current market capitalization of around C$2M appears to offer a very intriguing risk/reward ratio. Keep in mind trading is still fairly illiquid after the restructuring as a large chunk of the shares are in lock-up until early 2020. However, Equity Metals could be an excellent tax loss selling candidate in the next 2-3 weeks, so keep an eye on sudden moves.

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Disclosure: The author has a long position in Equity Metals. Equity Metals is a not sponsor of the website but could become one.

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