MacroPass: Jeff Clark On Outcrop Silver

A detailed on-site tour of one of the world's richest primary silver deposits

This week’s installment (the 11th!) of our new MacroPass service for premium members of this Substack comes from mining stock analyst Jeff Clark, publisher of The Gold Advisor.

Jeff recently conducted an on-site visit of Outcrop Silver as part of his“boots-on-the-ground” due diligence on this Colombian silver mining company that he’s just added to the list of recommended stocks he maintains for his Paydirt Prospector premium subscribers.

His full report is provided below. It gives a great view into how a seasoned analyst evaluates a mining play: what they look for, what catches their interest, what risks they look to avoid, etc. It’s hugely helpful insight for retail investors who own stocks in this sector (or are thinking of doing so).

If you somehow missed our previous announcements, MacroPass is a weekly rotating selection of premium analysis from many of the big thinkers interviewed on Thoughtful Money.

To-date that list of contributors includes experts like Stephanie Pomboy (Macro Mavens), Danielle DiMartino Booth (QI Research), Tom McClellan, Michael Howell (Capital Wars), Darius Dale (42 Macro), Doomberg, Kevin Muir (The Macro Tourist), Alf Peccatiello (The Macro Compass), Lance Lambert (ResiClub), Ed Yardini (Yardini Research), David Hay (Haymaker), Melody Wright (M3_Melody), David Stockman (Contra Corner), David Brady (FIPEST Report), John Rubino, Adam Kobeissi (The Kobeissi Letter), Sven Henrich (Northman Trader) and Jeff Clark (The Gold Advisor).

The reports issued so far in this MacroPass series include

• Ed Yardeni on the labor market, fed rate cuts & more

• David Stockman on stolen economic growth

• Michael Howell on global liquidity

• Melody Wright on mortgage default risk

• Edwin Dorsey on the short argument for Primerica

• Danielle DiMartino Booth on the debt-default reckoning lying ahead

• David Hay on the wild action in the Japanese yen

• Kevin Muir on the emerging opportunities in Chinese stocks

• Alf Peccatiello on the growing fragility in credit markets

• Tom McClellan’s excellent April Market Report

If you’re already a premium subscriber to this Substack, just continue below to read this week’s report from Jeff.

And if you’re not (yet), read the start of it below. If you like what you see, just upgrade to premium and access the full report, as well as all past and future MacroPass content.

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June 17, 2024: New Pick and Site Visit Report: Outcrop Silver

Hi Paydirt Prospector investors,

I’ve got a bonus report and recommendation for you today…

I visited this silver explorer that is advancing one of the world's richest primary silver deposits. With imminent assay results pending from step-out drilling, which could have major implications on the size of the deposit and why I suggest taking a first tranche now.

It’s an exciting pick, one that has a clear path to becoming a future silver powerhouse. It’s also one I’m now intimately familiar with…

I participated in an analyst tour from June 1-7 in Colombia, South America. It included visits to the cities of Bogota and Ibague, and the mountain town of Falan where most of the project is located.

Come along with me as we explore…

OUTCROP SILVER (OCGSF; V.OCG; FSE:MRG)

I’ve actually been talking to management for a couple years and been invited to tour several times. I didn’t feel the time was right until recently—and what I found may surprise you, as it did me.

But before I get to the tour itself and why I’ll be buying the stock, first some background information…

Santa Ana: 100 Million Ounces of Silver On Tap?

One reason I accepted the invitation is because I wanted to assess the project’s potential myself. Santa Ana currently has a 37Moz silver resource, but management sees the potential for 100 million ounces. That’s a big jump—is that really possible?

First, Santa Ana sits on an 18.5-kilometer mineralized trend. The current resource is composed of only 7 of more than 22 sampled veins. Most resource veins are open at depth and laterally, and less than 25% of the concession area has been mapped. As you’re about to see, drilling is underway to both expand the resource area and prove up the trend with big step-out targets that are kilometers away.

Second, this is a very high-grade deposit. The average indicated resource grade is 614 g/t silver equivalent. Vizsla Silver’s Panuco deposit is 437 g/t silver equivalent, and Dolly Varden’s is 300 g/t silver. There is no primary silver development project in the world with an average grade this high.

High grades are common here.

• The Frias mine, located at the tip of Outcrop’s southern border, once produced 1.3 kilograms per tonne of silver, or 41.8 ounces.

• In colonial times, the average grade at the Paraiso vein was 21.6 kilograms per tonne of silver, or a whopping 694 ounces.

• And last year the company intersected 3.05 meters of 3,975 g/t silver equivalent, including 0.63 meters of 16,690 g/t, or 536 ounces.

Some of the richest silver veins in the world are running throughout this region.

Third, the metallurgy here is extremely strong for silver. Gold recoveries averaged 97%, and silver averaged 93%, both very high. There are silver mines in operation today that have recoveries in the 60% range. This puts Santa Ana in the upper echelons for metallurgy.

Last, what many investors overlook is that because it’s mostly silver, the deliverables to a refinery will fetch a higher payable. Many dore bars end up with multiple metals, or are lower grade, or have complicated metallurgy. Not the metal coming from Santa Ana. And this higher payable will go directly to the company’s bottom line.

Can Narrow Veins Be Economic?

One characteristic of silver veins is that they’re typically narrow, even when the “swell” of the “pinch and swell” is wider. This is true at Santa Ana as well. Narrow veins can be trickier to mine, as you frequently end up digging up a lot of waste rock to get to the silver ore.

The average vein width at Santa Ana is 0.80 meters. They are wider in some areas, up to 5.9 meters in Las Maras, but that’s more the exception than the rule.

So, can veins this narrow be economic?

To answer that I’d like to tell you about the mining projects to the north of Santa Ana…

• Starting at the top, the Segovia mine is an underground gold operation in Antioquia, Colombia, with an average vein width of 1.2 meters. It produced 203koz gold last year at an All-In Sustaining Cost (AISC) of $1,173/oz, generating $66 million in free cash flow.

• Next is the Buritica Mine, one of the world’s largest, high-grade gold mines, grading 6.93 g/t and producing more than 290,000 ounces gold annually. Veins in the resource model measure from less than 0.8 meters to 1 meter.

• The Marmato mine also has narrow veins. It has a 6Moz gold resource at 3 g/t. The veins are sometimes so narrow they call them veinlets. An expansion is underway for a 4,000 tpd processing facility, with first gold pour in late 2025, what will be another big and high-grade operation despite narrow veins.

As you can see, narrow veins are being mined in this region right now. And Santa Ana’s exceptionally high-grade veins make them even more amenable.

With That Background, Let’s Go to Colombia!

First up, Bogota…

On our first day, we visited