The Case For Azure Minerals & A Chat with Managing Director Tony Rovira

For those of you that haven’t read my recent post on where I see commodity markets heading, I’m starting to take positions in companies in the precious metals space (particularly silver) as I see a possible rebound in metals prices in the not-too-distant future.

Due to the recent down turn in the commodities sector, there are a number of exploration juniors that have found what appears to be high quality deposits, but haven’t yet experienced the rapid share price appreciation that they likely would have during bullish market conditions.

Part of my current strategy is taking positions in these companies now, to take advantage of likely share price rises when the market turns for the better.

One of these companies is Azure Minerals (AZS.AX) who have recently discovered what appears to be an extremely high grade silver deposit in Mexico.

I got in Touch with Azure Managing Director Tony Rovira to discuss the companies developments. However, before I get to our correspondence I’ll outline a little bit about why I’m so bullish towards Azure Minerals.

The Case For Azure Minerals

Azure has recently discovered high grade silver mineralisation at their Alacrán tenement in Northern Mexico. They drilled four boreholes with all four returning significant silver grades. A shot from their 16th of September announcement highlights perfectly the kind of grades and thicknesses we are talking about:

Azure Mineralisation Grade

Screen shot from Azure Minerals initial discovery announcement on the 16th of September showing the silver grades and thicknesses encountered. Source: Azure Minerals Announcement, September 16th 2015

To put things in perspective, based on the limited completed drill holes to date, and the current spot prices for gold and silver:

  • The “ultra high grade9.0m intercept @ 1,235g/t silver is equivalent to 16.2g/t gold.
  • The approximate average of the “high grade zone” appears to be ~500g/t, (~6.5g/t gold equivalent), over a thickness of approximately 20 meters.
  • The approximate average of the “overall mineralised zone zone” appears to be ~250g/t (~3.5g/t gold equivalent), over a thickness ranging from 39 meters to over 70 meters.

Now bear in mind that the thicknesses quoted above are likely to be very close to true thickness, based on the fact that the mineralised body appears to be a flat to shallowly dipping, tabular, erosion resistant body which has formed the outcropping Mesa with which it resides.

Photo looking north, showing the outcropping mineralisation at Mesa de Plata. The mineralisation has formed an erosion resistant capping layer which has resulted in the mesa formation.

Photo showing the outcropping mineralisation at Mesa de Plata. The mineralisation has formed an erosion resistant capping layer which has resulted in the mesa formation. Source: Azure Minerals Announcement, September 16th 2015

Yes that’s right, all of the above occurs from surface, meaning there’s likely to be almost no overburden. All in all, this means a likely extremely low cost deposit to mine due to the absence of overburden.

To give you another look at the deposit, I’ve included a preliminary schematic long section from the same September announcement below. The black horizontal lines with Above Sea Level (ASL) numbers represent the possible base of mineralisation along the deposit.

Mesa de Plata Long Section

Preliminary long section of the Mesa de Plata silver discovery. Source: Azure Minerals Announcement, September 16th 2015

The Mesa de Plata target was initially identified by analyzing soil geochemical sampling which showed a clear and strong silver anomaly at the site. This was followed by the drilling program which confirmed significant silver mineralisation within the vuggy siliceous capping layer.

Subsequently, mapping and soil geochemistry sampling on the ridge directly to the north east has identified both a) the same vuggy siliceous lithology and b) a similiar in soil silver geochemical anomaly. This prospect has since been named “Loma Bonita“.

Azure Minerals Silver anomaly

Map showing the soil sampling locations and silver anomaly results at both Mesa de Plata and Loma Bonita prospects. Source: Azure Minerals, 25th October 2015 Announcement.

You’ll notice Loma Bonita has returned similarly anomalous silver values to Mesa de Plata. One unique difference however is that whilst Mesa de Plata soil samples and drilling assay results have proven barren for gold, the same soil samples shown above at Loma Bonita have returned significant gold values:

Azure Minerals gold anomaly

Map showing the gold values recorded from soil sampling at both Mesa de Plata and Loma Bonita prospects. Note the significant gold anomaly at Loma Bonita. Source: Azure Minerals, 25th October 2015 Announcement.

That suggests to me that there is a very decent chance we are going to see both gold AND silver mineralisation at Loma Bonita. No exploration drilling has yet been undertaken at Loma Bonita.

Further to that, Azure geologists have suggested the deposit is likely a high sulphidation, epithermal deposit. The mineralised fluids the create these deposits originate from a magmatic source at depth, typically a porphyry body as shown in the diagram below:

High Sulphidation Mineralised systems

Schematic showing a conceptual model of a typical epithermal system. Source: Patersons Research Note

The fact Mesa de Plata and Loma Bonita are just a stones throw from the second largest open cast porphyry copper mine in North America, Cananea, suggests there is the potential for further exploration upside, both in trying to identify the feeder system and the primary source of the mineralising fluids, i.e. a possible porphyry at depth.

Photo’s shown here, taken during a site visit by Andrew Jackson of well renowned Resource investment firm Sprott Global, show the potential of the deposit. In particular I like:

  • Photo 3 which is taken from atop the Mesa de Plata outcrop and shows the vicinity of the deposit to the giant Cananea mine,
  • Photo 7 which provides a great shot of the nature of the “vuggy silica” which hosts the silver mineralisation and
  • Photo 11 showing the steeply dipping structures in the valley between the Mesa de Plata and Loma Bonita ridges – an exciting exploration target which may represent the feeder system mentioned above.

Mesa de Plata “in-situ” Silver Estimation

To give you an idea of the size of the resource we are potentially looking at, I decided to undertaking a rough “back of the envelope” calculation of the possible “in-situ” silver value based on the initial four drill hole results at Mesa de Plata. I assumed:

  • ~160,000m2 of outcropping mineralisation based on estimated figures in a recent Azure announcement,
  • An average true thickness of ~40m for the overall mineralised zone,
  • An average grade of ~250g/t Ag for that zone and
  • A specific gravity of 2.65g/cm3, i.e. that of quartz.

What I came up with was a preliminary “guestimation” of a possible silver resource of nearly 150 million ounces of silver worth over US$2 billion at current spot prices:

Azure resource calculation

Screen shot showing my “back of the envelope” calculation with regards to a possible “in-situ” silver value at Mesa de Plata

Now, obviously the above calculation is conceptual at best and is based on data from only four drill holes, geochemical sampling and the companies mapping program, but it gives some idea of the size of the resource we could be dealing with at Mesa de Plata. It’s also a similar value to that presented in a recent Research note put forward by Patersons Securities.

Closely spaced RC resource definition drilling is currently under way at Mesa de Plata and will give a much clearer picture of the size of the resource and allow for a JORC compliant resource to be defined.

It’s important to note that the value mentioned above doesn’t consider any potential upside from the adjacent Loma Bonita, which is already proven to have a similar if not more prospective (i.e. includes gold) geochemical anomaly than that found at Mesa de Plata.

When you also consider the significant exploration upside potential with regards to the associated feeder and/or porphyry systems, then there is the potential for Azure to have one of the most significant exploration finds of recent times….and we haven’t even mentioned Azures other Mexican prospect,  Promontorio, in which they currently have a joint venture agreement with global giant Rio Tinto.

I hope it’s becoming clear why I am rather bullish on Azure Minerals, a company I initially became interested in back in July, due to technical reasons I identified in it’s trading patterns. Since then, the more I research Azure, the more I’m convinced the company has an extremely bright future.

A Discussion with Managing Director Tony Rovira

I decided to get in touch with Managing Director Tony Rovira and ask him a few questions regarding how things were going, both for myself as a shareholder and for The Nude Investor readers. I was delighted that he was more than happy to answer my questions.

Tony responded to be on the 12th of November, 2015 – see our correspondence below:

NI: Hi Tony, firstly as a shareholder, I’d like to congratulate you on the work you guys are doing at the moment. The recent discoveries coming out of Alacrán look set to unlock some real value for shareholders. Could you give us an update on Mesa de Plata – I know the diamond twin holes must be almost completed, if not already completed? Also the RC resource definition must be well under way?

TR: Thank you for your kind words. In replying, as I am sure you are aware, I cannot provide you with any material information that has not been released to ASX but I am happy to clarify matters for you. MDP is a great discovery due to the good work by our exploration team in Mexico, and they are continuing to advance the project. The diamond core drilling comprising 5 holes is now complete. The first 3 twinned RC holes and the remaining 2 were drilled into mineralised outcrop in the northern part of the prospect. The RC resource drill-out is going very well, with an average of one hole being drilled per day.

NI: The geochemical anomalies across the ridge at Loma Bonita look very promising as far as extending the zone of at/near surface mineralisation goes. What can we expect as far as near term exploration at Loma Bonita?

TR: We’re continuing to undertake surface mapping and sampling over Loma Bonita and the areas further to the north. This is quite a large area, certainly larger than the MDP ridge, hence it will take longer to define locations for drill sites and access tracks.

NI: As a geologist, the long section published in your announcement on the 16th of September highlighting the initial discovery shows that the geology looks, structurally at least, relatively simple (flat lying without too much in the way of faulting and complexity). Having spent a bit more time getting the know the area, is this still your opinion?

TR: Yes, the strata is flat-lying, perhaps with a shallow north-easterly dip. There are occasional faults which result in minor vertical displacements. But overall the geology of MDP is simple.

NI: On the geology front, in my opinion there’s likely there’s more mineralisation to be found with regards to both the feeder system and primary source of the mineralising fluids. What are Azures thoughts on this and is there any plans to explore the area for the different mineralisation phases that might be associated with a broader mineralised system?

TR: As MDP is the result of a high sulphidation epithermal mineralising event, there will have been a mineralising source and a feeder system. Exploration for these targets is ongoing.

NI: Part of the reason for undertaking the diamond twin holes was to gain samples for metallurgical testing. Knowing that metallurgy can often make or break a prospect and that primary silver can sometimes be troublesome, what is your initial thoughts regarding the mineralogy and the ramifications with regards to metallurgy?

TR: Information on metallurgical and mineralogical studies will be release in due course.

NI: As highlighted in the recent Patersons research note, Teck has clawback rights to the project. Many people are wondering whether they will take up this opportunity, given that they recently exited Mexico on the whole and the deposit is probably going to be small by their standards. Is there anything you can tell us on this front, i.e. have you had much dialogue with Teck and what is your gut feeling about their intentions?

TR: I can add nothing to this subject at this time.

NI: Globally, silver miners are really struggling right now. Do you see Alacrán as a project that you are setting up now to be ready when the “tide turns”, or are you confident the recent discovery is likely to be economic, regardless of market sentiment?

TR: Obviously we will need to do the various studies required to economically evaluate MDP, however because MDP is located on the top of a hill with no overlying waste rock, and the mineralisation drilled so far is of high grade, it’s looking positive. Another point to be aware of is that the Mexican peso has devalued against the US$ by over 30% in the past year, which is good news for the many gold and silver producers in Mexico.

NI: It’s clear that you’ve garnered a fair bit of interest since discovering the Mesa de Plata silver deposit. Given the downturn in the mining sector and the struggles many juniors are having raising funds, are you confident of being able to raise the necessary capital to progress the project, under terms that existing shareholders will be happy with?

TR: Yes

NI: There’s no hiding the fact that the global mining sector as a whole is in a bit of a depressed state right now. Are you finding that you are able to use this to your advantage by way of obtaining mining services at a cheaper cost than you would have during the “bull” times?

TR: Yes, drilling and assaying costs are significantly lower now than they were a year or more ago.

NI: Whilst Alacrán and the Mesa de Plata/Loma Bonita has had much of your immediate focus, you also have some very promising ground at Promontorio with your Rio Tinto JV. We have’t heard much about activity their of late – can you update us regarding a) the recent developments there and b) what we can expect in the next 6 to 12 months?

TR: As I said in the Quarterly, due to the promising results from the aeromagnetic survey, the size of the IP survey was expanded and it is continuing. I can’t say any more at this time.

NI:Is there anything else you’d like to tell both existing shareholders and those considering making an investment in Azure Minerals?

TR: When we acquired the rights to Alacran I said that, in my opinion, it was the best underexplored property in Mexico. And I believe the results are showing that that is indeed the case. MDP is a great discovery and I believe that there is excellent potential for finding a lot more precious and base metal mineralisation on the property.

NI: Thanks for taking the time to respond and as a shareholder, I’m looking forward to the next 12 to 18 months. Hopefully the commodities space can see a bit of a sector wide turn around to help things along as well.

So there you have it – a great chat with Tony and some really interesting information there.

The most interesting thing I found from the discussion was the fact that Azure has identified “quite a large area, certainly larger than the MDP ridge” to the north of Mesa de Plata that the company clearly see’s as highly prospective – likely due to outcropping of the same vuggy silica unit.

It’s also important to note that since our correspondence, Azure has announced it has successfully raised $5.22 million to fund development at Mesa de Plata at just a 7% discount to the current share price. Raising that amount of capital is no mean feat in this stage in the cycle, let alone at such a small discount.

The placement went to a) a large Canadian institutional investor, b) Exploration Capital Partners 2008, an outfit linked with Sprott Inc, a well renowned North American based natural resources investment firm and c) Mark Creasy, an existing major shareholder who is well known Australian prospector, famous for his involvement in the Nove Bollinger Nickel discovery.

The company is now well funded to move forward with developing Mesa de Plata and the surrounding prospective ground.

Conclusions

Azure Minerals initial exploration program at their Alacrán tenement in Northern Mexico has unearthed significant, shallowly dipping, at surface, high grade silver mineralisation. The deposit looks to have all the hallmarks of being very cheap to mine.

In my opinion, there is significant exploration upside to come, with strong in-soil geochemical anomalies already identified across the ridge at Loma Bonita as well as possible feeder structures in the valley between the two. The possibility of looking for the primary source of the mineralised fluids, i.e. a potential porphyry and feeder systems, is also very exciting.

With the recent raising, Azure is well funded for the immediate future and we should see a constant flow of significant news in the near term. With precious metals markets current in an extremely depressed state, Azure is definitely a player that will be highly leveraged to rises in the price of silver when the market finally turns.

All in all I think Azure may be in the process of discovering one of the better exploration finds in recent times. Add in the fact that Azure has a highly dedicated and experienced team, as well as the backing of well renowned prospectors and institutions, and I believe we should see good times for shareholders over the next 12 to 18 months.

Happy Investing,

The Nude Investor

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Disclosure: At the time of writing, the author of this post holds shares in Azure Minerals (AZS.AX). All effort has been made to ensure that the information presented in this article is accurate , however there may be errors and individual investors should conduct their own due diligence to verify claims made in this post. The author is not a trained investment professional and this post should not be considered investing advice.