Conservative Financing Strategy Paying Dividends

Precious metals prices are subject to fluctuations as a result of geopolitical uncertainty, exchange-rate volatility and supply-and-demand. Several notable operators have made attempts to insure their companies by using mechanisms like stock shorting and hedging. But Frederick Davidson, President and CEO of IMPACT Silver, does not believe in using artificial methods to buoy the company.

“At IMPACT Silver we try simply to keep our costs as low as possible and let the investor predict the potential foreign exchange fluctuations,” he says. “That way, when they buy our stock, they know they are getting a pure silver deal that has not been affected by our own commodity price speculation. This is where we differentiate ourselves from a lot of silver producers.” Upside on IMPACT stock per share, he says, is much better than buying ounces of silver.

Given the company’s strong financial performance in 2016 and its subsequent incorporation into the list of top 100 performers on the TSXV, this strategy seems to be paying off. Davidson believes IMPACT can maintain its momentum since the market is getting stronger for silver and investing in commodities and that combination will help over the next few years.

The company was able to demonstrate impressive growth, at one stage in 2016 even increasing its earnings by 1,000 percent. “The mining industry last year was so underappreciated that when the market started to recover, investors began to seek quality stocks first and foremost,” says Davidson. “Our stock was able to recover a great deal because we are a company that has been in mining production for 10 years, starting at 130t/d and now we are at 600t/d. This has been financed primarily out of profits.”

As a result of its unique financing model, IMPACT was able to increase silver and gold production, increase revenue per ton sold and reduce direct costs per produced ton over the course of one year from 2015 to 2016. The operator has three producing assets: Mirasol, San Ramon and CucharaOscar located in the Royal Mines of Zacaulpan district on the border of the State of Mexico and Guerrero. The Capire mine in Guerrero is under care and maintenance and Veta Grande in Zacatecas was sold to Endeavour Silver in 2017. Both San Ramon and Cuchara-Oscar are undergoing further exploration, a strategy that has already paid off with the discovery of San Ramon Deeps below the existing mine.

“The interesting thing about San Ramon is that we were mining it for 10 years and it contributed around 20 percent to the mill feed,” says Davidson. When it looked like the grade was dropping on the concession in early 2015, IMPACT began condemnation drilling and discovered San Ramon Deeps, which is a deposit that is substantially larger than San Ramon but has never been explored. “This deposit looks like a different stope with grades that are comparable to those of San Ramon,” he explains. “This tells us there are additional mines in the area that are yet to be discovered.” With the incorporation of San Ramon Deeps into IMPACT’s portfolio, Davidson believes this success can be replicated elsewhere with the potential in this area to produce up to 4 million ounces.

Traditionally in this area of Guerrero, there have been silverlead-zinc deposits whose grade tails off when drilling to depths of 250-300m, and IMPACT has found an underlying gold-copper zone on three separate occasions. “It could be that this is a completely separate district, which is interesting because the former deposits have been mined for 500 years while the gold-copper deposits have not been exploited,” he says. “This makes it a very interesting property.” In several silver-lead-zinc projects that have been mined, such as Guadalupe and Nochebuena, there have been indications of potential additional gold-copper deposits.

Davidson does not rule out the possibility of adding a new asset to the IMPACT portfolio given the right opportunity. In 2016, IMPACT acquired about US$7 million in financing and is producing positive cash flows. “We have solid indications from some funds that they will support us if we choose to make an acquisition and we are talking to a few companies we could acquire,” he says. “There are several targets, including some in Mexico, but it will be a question of identifying the right deal financed in the right way.”