Asian investment creates buzz about South American Silver

High-tech investors, materials manufacturers and end users of indium and gallium from Taiwan, Hong Kong, Japan and Korea have invested US$16 million in South American Silver (SAC-T, SOHAF-) in a private placement that has brought the Vancouver-based junior under the spotlight.

The money will be used to advance the development of the company’s Malku Khota silver-indium-gallium project in Bolivia and its Escalones copper-gold project in Chile.

Indium and gallium are critical for the manufacturing of flat-panel LED lighting and thin film solar panels, among other applications. Currently about 60-70% of the world’s indium mining and smelting production supply is in mainland China, according to South American Silver.

“We are encouraged that third parties share our view regarding the value of these electric metals,” Jon Hykawy of Byron Capital Markets in Toronto writes in a note to clients.

Hykawy adds that there are no restrictions attached to the private placement with respect to what projects may receive the funds and that currently there are no off-take clauses with respect to any metals South American Silver produces in the future.

The investment will bring South American Silver’s total cash position to about $43 million.  

The proposed offering is for 10 million units priced at $1.60 (representing a 6% premium to the company’s five day volume-weighted average trading price on the Toronto Stock Exchange), with each unit made up of a share plus a half warrant (priced at $2.00 and expiring in 24 months).

Hykawy has a speculative buy rating on the stock with a price target of $2.75 per share. At presstime South American Silver was trading at $1.62 per share within a 52-week range of $1.20-$2.53.

South American plans to release an updated economic assessment of Malku Khota before the end of the second quarter and the company expects to start work on a feasibility study in the second half of this year.

Greg Johnson, the company’s president and chief executive, noted in a press release that a number of new Asian investments have been made in Bolivia, which complements the heads of state agreements reached recently between the South American nation, China and South Korea to develop other high-tech metals projects.

Johnson estimates that once in production Malku Khota will produce 10% or more of the world’s supply of indium and gallium. He also noted that South American Silver may review possible indium/gallium off-take or streaming-type arrangements as a means of financing the project after the company finishes a prefeasibility study.

Malku Khota is in central Bolivia and has indicated resources of 255 million tonnes grading 28.7 grams silver per tonne, 5.8 grams indium per tonne and 4.3 grams gallium per tonne for 230.3 million ounces of contained silver, 1,481 tonnes of contained indium and 1,082 tonnes of contained gallium.

Inferred resources add 230 million tonnes averaging 18.9 grams silver, 4.1 grams indium and 4.3 grams gallium for 140 million ounces of contained silver, 935 tonnes of indium and 1,001 tonnes of gallium.

An updated preliminary economic assessment of the project in May last year envisioned a bulk-mineable heap leach operation with the potential to be one of the largest new silver, indium and gallium producing mines in development, the company says. The project is road-accessible with nearby commercial scale natural gas and electricity infrastructure in place.

The company is planning a 20,000-metre drill program that will include infill drilling to convert inferred resources to the measured and indicated category and to test further resource expansion at depth. The company estimates only about 30% of the known  mineralised host stratigraphy at Malku Khota has been drill tested.

South American Silver also plans to complete a preliminary economic assessment of its Escalones copper-gold project, 100 km southeast of Santiago in Chile, in the fourth quarter of this year.

Escalones has an inferrred resource of 420 million tonnes grading 0.41% copper, 61 parts per million molybdenum, 0.05 gram gold and 1.24 grams silver at a 0.2% copper-equivalent cut-off grade for 3.8 billion pounds of contained copper, 56.9 million pounds of molybdenum, 610,000 ounces of gold and 16.8 million ounces of silver.

The company has begun its second phase of exploration at Escalones and plans to drill 7,000 metres and update its resource estimate by the middle of the year.