Discovery Metals (DSV) - Fully-Funded Mexican Silver Player with Clever Plan

Discovery Metals is a Mexican silver developer and is part of the Oxygen Capital Corporation. The market cap has been rising impressively this year and is now the highest it's ever been: c. C$324M with a share price of C$1.26.

Discovery Metals leverage to the price of silver via the 100%-owned flagship Cordero project. Cordero is one of the world's largest undeveloped silver resources. It's located in the active mining state of Chihuahua, Northern Mexico. The aim is to develop Cordero into a high-margin, large-scale silver mining project. Discovery Metals' strong management sheet is reinforced by admirable financing backing by the Oxygen Group, with the renowned Eric Sprott now its largest shareholder (over 24%). With $40M in the bank, Discovery Metals will now look to develop Cordero into a derisked, high-grade silver project.

Matthew Gordon talks to Taj Singh, 10th July 2020

With a falling silver price, the previous owners decided that the bulk-tonnage silver operation they were planning had become economically unappealing. Discovery Metals think they have spotted an opportunity to approach the advanced project differently and unlock the value. With 300 drill holes and 130,000m+ of drilling, they have re-interpreted the data and shifted the strategy, focussing on the high-grade drill core that works at the current deflated silver price of US$17/oz. A predicted rise in the silver price could further enhance the economics of this operation, but Discovery Metals does not need this to happen in a hurry; it believes it can cope fine in the current low-price environment.

Singh believes the crucial inflection point for the value the market is attributing to Cordero will come once this new interpretation of the resource is given more certainty as it progresses through the studies process. He says Cordero should be revalued as a new project. The large drill programme and staged approach that Discovery Metals is now undertaking is key to proving Cordero's potential.

Investors can expect to see a Resource by this time next year at the latest, followed shortly after by a PEA. In the interim, Discovery Metals will be putting out monthly drill results to further communicate the new value proposition to the market. We need to see how the marketing strategy is received by the market: if you have something good, shout about it! Drill results will be released over the next few months with more metallurgical detail, and investors can look forward to some more share price growth if all goes as planned. Singh believes this will be more than enough to get the market excited. He "really, truly" believes that Discovery Metals' current valuation is a fraction of its true worth. Don't they all!

The management team has an encouraging track record. Singh has been CEO since Discovery Metals' inception in late 2017. Before that, he was the VP of Corporate Development and Engineering at Timmins Gold Corp., operating a c. 125,000oz pa gold heap-leach project in Mexico. He has over a decade of Mexico-specific experience. He previously worked as an analyst at Macquarie Group, covering the junior resource space. Prior to that, he worked at Inco and Vale. It's a good résumé. The remainder of the team has a similar depth of experience, being influential at numerous successful mining operations. This includes CFO and Corporate Secretary, Andreas L’Abbé (CPA, CA, MBA), VP Exploration, Gernot Wober (P. Geo) and company Chairman, Murray John (B.Sc, MBA). In terms of G&A, Singh claims that it is fairly modest and most of the $40M is going into the ground. I'll be checking.

The phase 1 drill programme is 55,000m. 18,000m is done. The majority of the drilling will be infill, but there is also an allotment for new discoveries. The actual resource area only takes up 1,000ha, a small number compared to Discovery Metals land package as a whole: 35,000 ha. There's definitely a potential exploration upside, but the focus right now is primarily on developing Cordero into something valuable. The company has dealt with COVID-19 very well, ceasing drilling 4-days before regulations were imposed and making use of the time to re-interpret data, run internal mine plans and carry out a variety of other desk work. Mexico is now back open. Discovery Metals had 4 drills running before the cessation of the programme. Operations are starting back slowly with just 1 drill, but this will gradually ramp up. Safety first, after all. Sprott has been hands-off, and he clearly trusts the management team.

Discovery Metals is effectively funded to construction, so what is the exit point? Interestingly, Singh claims that taking Cordero into production themselves is a possibility. However, a sale looks the more likely option.

What did you make of Taj Singh and Discovery Metals?

Company Website: https://dsvmetals.com/