Vancouver, British Columbia-based New Pacific Metals Corp. (NUAG.V) (NUPMF) is a Canadian company engaged in exploration and development, with properties in Bolivia, Canada and China. The company is optimistic about its primary asset, the Silver Sand project in Bolivia, which it is in the process of advancing. New Pacific has a strong balance sheet to support its exploration and drilling program and also has attracted investment interest from two publically traded mining companies. Moreover, reflecting the importance of its mining industry, Bolivia is perceived to be a mining friendly and politically stable host country. In fact, the company has indicated that it is actively seeking other mineral properties in Bolivia in addition to Silver Sand. Management believes that its strong relationship with the Bolivian mining authority, COMIBOL, will provide it the opportunity to review other mineral properties.
Potosi Region Historically Has Been a Significant Source of Silver
New Pacific’s flagship project, Silver Sand, is located in Bolivia, as noted. Mining is among Bolivia’s most important economic silos, accounting for roughly 28% of Bolivia’s exports in 2017, according to the U.S. Department of Commerce. The Silver Sand Property is located in the Potosí Department of Bolivia, which is situated in the southwestern part of the country, and is a largely barren, mountainous region. Potosi historically has been rich in silver. In fact, silver mines were discovered in Potosí in the sixteenth century and became a well-established source of wealth for the Spanish colonialists. Specifically, Potosí was Bolivia’s richest province in terms of silver mining during the Spanish colonial era and accounted for a significant percentage of the silver that was exported to Europe.
Source: Company Presentation
View Exhibit I
Silver Sand is located roughly 4,050 meters above sea level, and roughly 25 kilometers northeast of the well-established Cerro Rico silver and base metal mine, which was an important source of silver and mineral extraction for the Spanish. Cerro Rico has the world’s longest history of continuous operation, according to New Pacific, beginning in 1550 and continuing to this day. Another important mine also located within the Potosi Department is the San Cristóbal Mine. San Cristóbal ranks among the world's leading producers of silver, zinc and lead. It was acquired by Japan’s Sumitomo Corporation in 2006.
Overall, Bolivia remains rich with mining opportunities, according to industry estimates. In fact, management believes that Bolivia has been under-explored. Although over the past 500 years, there has been continuous mining operations conducted in Bolivia by different groups, estimates indicate that only about 10% of the country’s mineral resources have been extracted. In addition to silver, other key metals and industrial minerals contained within the country’s different mining zones include zinc, lead, tin, gold, copper, tungsten, sulfur, potassium, borax, and semi-precious stones.
Bolivia opened its mining assets up to external investment in the 1980s, privatizing assets that previously had been held by the state-owned Bolivian Mining Corporation, COMIBOL, and allowing foreign investors to participate through joint venture or leasing contracts. Bolivia signed new mining laws in 2014 and 2016, thereby encouraging further resource investment by foreign entities. Moreover, an updated law for foreign investment protection is currently under revision, according to management.
In 2017, New Pacific shifted its strategy to focus on its mineral interests in Bolivia and monetize certain non-core assets. New Pacific acquired the Silver Sand property on July 20, 2017, for about $36 million, through its acquisition of then privately-held Empresa Minera Alcira, which became a wholly-owned subsidiary of New Pacific. Alcira had originally acquired the Silver Sand asset in 2009. Prior to that, Silver Sand had undergone some small-scale artisanal mining, as evidenced by scattered shafts, pits, adits, declines and dumps within the property. On its own, Alcira conducted some exploration of Silver Sand from 2012 through 2015, but little thereafter it seems. Through the Alcira transaction, New Pacific also obtained control of several other sites that are early-stage exploration projects.
The original Silver Sand acquisition included 17 contiguous concessions that, in the aggregate, totaled 3.15 square kilometers. As noted, Silver Sand is one of the oldest silver mines discovered in the Potosi region. New Pacific notes that it was originally discovered even before Cerro Rico. New Pacific believes that it can mine Silver Sand more successfully than previous operators have, reflecting several factors including new technology and a relatively stronger balance sheet. Importantly, access to the Silver Sand flagship project is relatively easy, as the roadways are good, according to management. Moreover, the company also has adequate access to water for future operations, according to management, with a Siporo-area river located nearby Silver Sand.
In addition to the Silver Sand project, New Pacific also owns the Tagish Lake gold project in Yukon, Canada, and majority interest in the RZY Project in Qinghai Province, China. The Tagish Lake Gold Property covers an area of 254 square kilometers in Canada’s Yukon Territory. It consists of 1,510 mining claims with three identified gold and gold-silver mineral deposits. The RZY Project in China is an early stage silver-lead-zinc exploration project. Mining and exploration activity at this asset are suspended at the moment, as the government issued a moratorium in 2016 that temporarily interrupted exploration for many of the region’s mining projects.
Silver Sand Exploration: Expansion and Progress
New Pacific commenced preparation for its planned exploration of Silver Sand shortly after its July 2017 acquisition of the property. In October 2017, the company was granted the exploration permits it needed in order to move forward. New Pacific assembled an exploration team of over 40 people and immediately launched its exploration drilling program. It had completed 55,010 meters diamond core drill holes by mid‐December 2018.
The company also began to expand the asset. In July 2018, the company entered into purchase agreements to acquire certain mineral concessions adjacent to the Silver Sand property. By December, the company had acquired total mineral concessions valued at $2.0 million. It financed this expansion with a US$1.0 million cash payment, plus the issuance of 832,000 common shares. The expansion mirrored the company’s confidence in the prospects of Silver Sands and the surrounding property.
2019 Drilling Program
On January 11, 2019, the company announced that its Alcira subsidiary had entered into a Mining Production Contract (MPC) with COMIBOL. The MPC authorized New Pacific to expand the land package it can explore and mine to cover an area of approximately 57 square kilometers, up from roughly three kilometers that it had rights to when if first acquired Silver Sand in 2017. The MPC is valid for 45 years or three phases of 15 years each. Management notes that this MPC represents the first such agreement with a foreign investor in Bolivia.
The terms of the MPC stipulate that if Silver Sand goes into production, 4% of the value of gross sales of all minerals produced from the property be paid to COMIBOL. The MPC also requires that New Pacific make a minimum investment of about US$6 million during the first five years of mineral exploration.
There are many signs of historical or underground mining in the area around Silver Sands that show occurrences of silver mineralization. Importantly, thus far the company has been encouraged by the results of its channel sampling and preliminary conformational drilling program. Metallurgical sampling and test work at Silver Sand began in September 2018. The company expects test work to be finished by the end of April 2019, but even at this early stage, management is extremely encouraged by the initial findings. The company has achieved positive recovery results in the extraction of silver by flotation processes and direct cyanidation.
Importantly, near-surface silver mineralization was intercepted in 190 out of a total of 195 holes. Significantly, the near-surface results – reflecting what management characterizes as the under-mined nature of Silver Sands and Bolivian mining properties in general – provides New Pacific with an opportunity to work on a project that starts at or close to the surface. According to the company, this would make Silver Sand more economical to develop than many other assets where drilling and mining activity has been more actively pursued and developed.
The company has outlined an ambitious drilling program for 2019 to advance Silver Sand. The assay results of its surface sampling of many of the artisanal mining dumps and chip-sampling from underground mining tunnels indicate that silver mineralized fracture zones could extend from the zones it had drilled in 2018 by at least 3,000 meters to the north, 500 meters to the west and east, and up to 1,000 meters to the south. The potential extensions of the mineralized fracture zones that the company has recently identified will be included in the 2019 drilling program.
Management: Mining Industry Veterans
New Pacific management has significant knowledge of and experience within the mining sector. The company’s CEO, Rui Feng, holds a Ph.D. in geology. He has worked as both a geologist and an executive in the mineral resource industry for over 17 years, according to the company. Also, in the 1990s he worked as research scientist for the Institute of Sedimentary and Petroleum Geology of the Geological Survey of Canada. In addition to being CEO of New Pacific, he is also the CEO, Chairman and director of Silvercorp Metals Inc., which is New Pacific’s largest shareholder.
New Pacific’s president, Gordon Neal, also has extensive experience within the mining sector. Immediately prior to joining New Pacific, he was VP of Corporate Development for Silvercorp Metals. In addition to its executive team, New Pacific’s has many directors who are also veterans of the mining industry in various capacities, including a former Canadian senator.
Balance Sheet Supports Planned Program
The company has a strong balance sheet to support its exploration program. Largely reflecting private placements conducted in 2017, New Pacific had more than $24 million in cash and equivalents at December 31, 2018 and no debt. Management has estimated that it will require $11 million to conduct its program in 2019. New Pacific believes that its near-surface mineralization might make Silver Sand more economic to explore and drill.
Based on its current plan and projections, management expects to end 2019 with about $13.5 million in cash. The company also expects the potential conversion of warrants expiring in May 2019 to generate roughly $9.5 million. Moreover, consistent with its strategy to divest of non-core assets, the company recently sold shares of Cozystay Holdings to Silvercorp Metals for US$495,495.
The company’s shares trade on the TSXV under the symbol NUAG.V and on the OTC under the symbol NUPMF. New Pacific’s shareholder base includes two large, publically traded mining companies: Silverwork Metals Inc., which is New Pacific’s largest shareholder and an affiliated company, and Pan American Silver Corp.
Silverwork Metals is China’s largest primary silver producer. Pan American Silver operates six mines, including the San Vicente mine located in the Potosí Department of Bolivia, making it one of the world’s largest primary silver producers.
Silverwork Metals holds a 27.5% stake in New Pacific. Pan American Silver owns 16.2% of the company’s capital. Pan American Silver Corp. trades on the NASDAQ under the symbol PAAS. It boasts a $2.8 billion market capitalization, and is “the world’s premier silver mining company,” according to company reports.
Silvercorp Metals trades on the NYSE under the symbol SVM. Silvercorp Metals and New Pacific have two officers in common, including their CEO, and two directors in common. They are therefore considered related companies. They also share office space and New Pacific receives certain general and administrative services from Silvercorp Metals. In addition, New Pacific’s CEO, Dr. Rui Feng, holds a 7.6% position in the company’s capital. Overall, reflecting their confidence in Silver Sand prospects, insiders hold 51.3%, including the above-noted Silvercorp and Pan American Silver holdings.
As with most other mining companies at this early stage of development, the risks the company faces include, among others, that the initial results have led to conclusions that are too optimistic or that the cost of the near-term exploration and drilling program are more extensive than management currently anticipates.
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