Equity Metals (EQTY.V) acquired the Silver Queen project just about three years ago. The company completed in excess of 25,000 meters of drilling in 79 holes and is now putting all the data together in an updated resource estimate which should be published in the next month or so.
In this update, we’ll discuss the company’s most recent drill results and discuss our expectations for the upcoming resource update.
The recent drill results
Earlier this month, Equity Metals released additional assay results from its June drill program on the Silver Queen flagship project. Assay results from three additional holes were released and two of those holes tested the 200-meter width of the Sveinson target close to the transition area where Sveinson meets up with the Camp target.
Both holes contained mineralization but the intervals were either relatively narrow or didn’t carry very high grades. In hole SQ22-076 for instance, a silver-equivalent grade of 789 g/t is excellent but considering the width was just 0.4 meters, building tonnage will be pretty slow.
A little bit deeper downhole, the company intersected 1.6 meters containing 649 g/t silver-equivalent with a higher grade interval of 0.4 meters of 1462 g/t silver-equivalent. The 1.6 meter width is fine, but it is clear the majority of the high-grade silver values are fueled by that specific 0.4 meter interval. If we would isolate this high grade intercept, the average grade of the remaining 1.2 meters would be 378 g/t AgEq and that still is a nice high grade result for an underground area.
Hole SQ22-077 encountered three distinct zones of mineralization with 1 meter containing 275 g/t AgEq (okay), 2.8 meters of 106 g/t AgEq (decent width but poor grade) and 1.4 meters of 235 g/t AgEq with a higher grade interval of 0.8 meters of 290 g/t AgEq indicating the residual 0.6 meters has an average grade of 162 g/t AgEq which is a little bit over five ounces per tonne.
The most interesting hole in the September update was hole SQ22-078 which was a step-out hole drilled about 50 meters from the known mineralization at the Camp Vein location. This hole encountered two distinct ultra high-grade intervals with for instance 1.3 meters containing in excess of 3,100 g/t AgEq within a 7.5 meter interval containing 778 g/t AgEq. On top of that, about 60 meters deeper, the drill bit intersected a second high-grade mineralized zone with 0.4 meters containing 2,411 g/t AgEq.
The location of hole 78 is interesting as well as it seems to indicate the mineralized system at the Camp Vein prospect seems to be bending into a more west-northwest direction (projected with the yellow lines) rather than a straight northwesterly direction. In any case, hole 78 confirms the Camp Vein system remains open in that direction and this will obviously be a high-priority drill target for Equity Metals down the road.
An updated resource estimate should be out soon – what to expect?
The main question now obviously is what we can and should expect from the resource update. Right off the bat, we should say modelling an underground narrow vein system is not easy. That actually is an understatement: it is difficult and the resource modeller will have a lot of work to analyze all the drill intervals.
One of the most important elements that leads to the reduced visibility is a grade cap. Equity Metals has encountered some phenomenally high grade mineralization in some of the holes but there’s zero doubt those grades will be capped as that is standard procedure to isolate outliers. The complicating factor here is that there is no ‘one truth’: the resource modeller will apply a realistic scenario.
This also means the average grade of the resource may come in lower than expected (depending on the grade cap used by the modeller). This may come as a surprise but is not necessarily a negative thing: once the project moves ahead to a PEA stage, the grade would likely be negatively impacted anyway. So it’s better to start out with a realistic average grade instead of surprising the market upon the completion of a Preliminary Economic Assessment.
A second potential issue is the metal prices used for the equivalent calculations. We know that in the 2019 resource estimate a gold price of $1300/oz and a silver price of $17/oz was used. The higher gold price will likely boost the grade from a silver-equivalent perspective.
So the question is what should we expect from the upcoming resource update. Keep in mind the existing resource contains 815,000 tonnes in the indicated resources and just over 800,000 tonnes in the inferred resource for a total silver-equivalent content of just under 22 million ounces in the indicated and just over 17 million ounces in the inferred resource category. We are using silver-equivalent ounces as we believe the company (should) abandon the gold-equivalent calculation. Notwithstanding the fact the gold and silver value is pretty similar when looking at a gross metal content in the resource, this really is a silver-polymetallic project with a nice gold credit.
We also cannot expect miracles from Equity Metals. Keep in mind the upcoming resource estimate will incorporate just over 25,000 meters of additional drilling. A bunch of that drilling consisted of infill drill holes and will not add any tonnes to the resource.
As such, we don’t expect a large tonnage increase on the No 3 Vein, which represented the (majority of) the 2019 resource estimate. Perhaps the company will be able to upgrade some of the tonnes, but we don’t anticipate a substantial increase.
The increased tonnage will have to come from the Camp Vein where Equity Metals has encountered multiple high-grade silver zones. As the Camp Vein was not included in the original resource estimate, we should expect to see a decent tonnage.
We don’t expect Equity Metals to reach its resource target of 1-1.5 million ounces gold-equivalent in this update. Again, the company completed just over 25,000 meters of drilling across all targets. If we would see something close to a double from the current resource estimate, we would be happy. 60-70-80 million ounces of silver-equivalent at a good grade would be excellent for a company of Equity’s size as that would still just be the stepping stone before expanding the resource even further as there still is some low-hanging fruit on the project and not all mineralized areas will make it into the upcoming resource either.
The company will have to raise cash on the back of a resource update
The eternal problem for a non-revenue junior exploration company always is funding. Equity Metals has proven to be an excellent steward of shareholder money as the company completed in excess of 25,000 meters of drilling and will be able to add dozens of millions of silver-equivalent ounces to the resource estimate with just very moderate amounts of spending.
In the most recent seven quarters (from September 1 2020 until May 31, 2022, the date of the most recent financial results), Equity Metals spent C$6.4M divided in C$2.6M in FY 2021 and almost C$3.8M in the first three quarters of the current financial year. As Equity Metals has raised approximately C$9M in a combination of hard dollars and flow-through funds since closing the acquisition of the project, it is clear the vast majority of the funds raised were spent on the project. That shows the Equity management team’s focus is on reaching the ‘critical mass’ stage on this project.
As of the end of May, Equity Metals had about C$1M in cash and a working capital position of C$0.85M. According to the most recent company presentation on its website, the cash position is currently around half a million dollars.
Should the updated resource contain 70 million ounces of silver-equivalent, the current market capitalization of the company would represent a value of just over US$0.10 per silver-equivalent ounce in the ground. Of course, only a small portion of the silver-equivalent ounces will actually consist of silver but the base metals and gold values could be a very nice by-product credit further down the road.
At just 5 cents per share, Equity’s market capitalization has fallen to roughly C$5M. This complicates the capital raising possibilities but fortunately, Equity is exploring a BC-based project so flow-through funds should remain available.
The updated resource will be published in a few weeks and should include a substantial increase in the total amount of silver-equivalent ounces.
Disclosure: The author has a long position in Equity Metals. Equity Metals is a sponsor of the website. Please read the disclaimer.