Alien Metals DD on High Grade Australian Silver Mine.
Following last week’s news that Alien Metals Ltd (UFO.L) had entered into an agreement to acquire a 100% interest in the former producing and high grade Elizabeth Hill silver project in the Pilbara region of Western Australia (WA), in this morning comment communication we provide further comment and high-level analysis of this potential new strategic project acquisition.
Comment and Recommendation.
Due diligence work is currently underway on Elizabeth Hill by Alien’s management team, encompassing analysis of a large volume of historical data from the current owner Karratha Metals Group Ltd, including 50,000 metres of drilling data from 470 holes.
Elizabeth Hill was previously in production between 1998 and 2000, with production of 1,170,000 ounces of silver, with a high head grade averaging 70 oz/t. It was mined during a period when silver prices were in a 10-year slump, trading in the region of US$4.5 to US$6.6 p/oz, compared to today’s much improved price environment of US$16.7 p/oz.
As the current owner reported back in its quarterly activities report in 2011, “a shallow high-grade pod of similar material was reported to remain in place”. Exploration upside potential exists at depths below the known mineralisation and outside of the mine area to the east and west of Elizabeth Hill.
Elizabeth Hill is noted for its previous high-grade nugget finds, including a giant silver nugget weighing 180kg discovered in 2000, which “is believed to be the largest primary silver mineralisation yet found in Australia”. A renewed exploration campaign by Alien Metals could lead to some exciting market announcements, if similar discoveries can be made.
The project is exceptionally well located in an established mining district of a tier-1 country jurisdiction, with grid power and groundwater available on site, lying just 5 miles from railway infrastructure and 25 miles from Dampier, a deep-water port on WA’s north coast.
Alien is acquiring the project for a modest consideration of around £322K (£280K in shares & £42K in warrants**), along with the provision of an 8% interest bearing loan of A$120K (£62K). .
**FEL valuation using Black-Scholes formula.
Once the acquisition conditions are met the new project will represent the Group’s most advanced project interest, given its brownfield status and relatively recent production profile, a fact that the market has not to date priced into the equity price.
The addition of Elizabeth Hill is complimentary to the Group’s Mexican silver prospective projects and builds upon an expanding and growing portfolio of interests, which includes the recent addition of WA iron-ore projects at Hancock Range and Brockman. To this end we continue to rate the shares in Alien Metals as a ‘Buy’.
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*First Equity Limited acts as Joint Broker to Alien Metals Limited
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