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Bayhorse Silver (BHS: TSX-V) has announced a Silver Convertible Debenture financing with proceeds going to reopen our Bayhorse Silver Mine and starting a bulk sample program. By doing this we intend to avoid diluting the Company's shares, and at the same time make the financing attractive for those participants who wish to take advantage of a low silver price, and who want the option of locking in these low silver prices now, for future delivery. (see news release BHS2015-21)
How soon can we start and how will we pay back the Debenture
We expect to begin producing the bulk sample within the first 60 days of commencement of operations. We intend to establish a sinking fund with proceeds from sale of the silver in the bulk sample to repay the Debenture.
The Bayhorse Silver mine is a past producer.
The Company has completed rehabilitation of the portal to the intermediate level that was partially mined in 1984. There is a historical known mineralized zone at the mine approximately 840 feet in length, 85 feet in width, and 22 feet thick, estimated to contain 160,000 tons of silver bearing mineralization at a reported grade of 17-20 ounces per ton silver at a 7.5 ounce per ton cut off. (Herdrick 1981)
The Company advises that a qualified person has not done sufficient work to verify the historical estimates nor classify the historical estimates as current mineral resources or mineral reserves and the Company is not treating the historical estimates as current mineral resources or mineral reserves.
Can we rely on these numbers
Past sampling that can be relied upon has identified grades as high as 69 oz/t (2,146 g/t). The Company has confidence in this sampling as it was conducted by the principal of Cordex Mining, Dr. A. Wallace, P. Geo., and the Company has acquired the data directly from Cordex. Dr. Wallace, of Reno, NV. is a respected exploration and mining geologist who has been honored as a member of the Mining and Exploration Hall of Fame. Other sampling prior to Cordex has identified grades of up to 260 oz/t Ag and in 2014 we sampled a bonanza grade of 4,835 oz/ton silver)
When did the mine last operate?
A short mining program was undertaken in 1984 by Silver King Mines, however, work ceased when the price of silver fell below $5.00 oz and the mine has remained closed until now. The average grade that Silver King mined was 16.7 oz/ton and the highest reported grade mined from the 1984 program was approximately 70 tons at 691 oz/t silver (Ag).
Is there anything that can be mined immediately?
Prior to closing the mine in 1984, Silver King blocked out 1,890 tons ready to mine, (mine plan map). Of the approximately 6,000 tons they mined during the short perio in 1984, Silver King reported 23% graded between 20 to 100 oz/t Ag, 71% graded between 6 - 20 oz/t, and the balance graded 6 oz/t or less. The Company initially plans to focus on the high grade mineralization that we believe we can be upgraded for direct shipping An indicative proposal has been received from Global Metal Tech of Spokane, WA to process that material.
Is it currently permitted and how much can be mined in a year?
The Bayhorse Silver Mine is permitted to remove 5,000 cubic yards (approx. 15,000 tons) from the property each year without further permitting There is reported to be a historic, non National Instrument 43-101 compliant estimated resource of 160,000 tons averaging 17-20 oz Ag per ton using a 7.5 oz/t cut off. (see NI43-101 report on website). Mineralization is open along strike to the west.
The Company advises that a qualified person has not done sufficient work to verify the historical estimates nor classify the historical estimates as current mineral resources or mineral reserves and the Company is not treating the historical estimates as current mineral resources or mineral reserves.
15,000 tons is not a lot.
No it is not, but the Company has conducted dense media separation (DMS) testing on approximately 500lbs of highly weathered low grade material (averaging approximately 5.28 opt Ag or 164 g/t Ag) from the historic waste pile on site, and found we were able to upgrade the silver content by up to 8 times and of course at the same time reducing the volume of the rock by 8 times. So by mining fresh mineralized material at 17 - 20 oz/ton and upgrading it by a factor of 8, then we have potential material for shipping of between 136 - 160 oz/ton. At US$16.50 per ounce the gross value is US$2,244 - US$2,640 per ton and at that grade we do not have to ship a substantial volume to get good cash flow.
What is Dense Media Separation?
Dense Media Separation is a process that uses the difference in specific gravity between mineralization and waste rock to remove the waste and upgrade the mineralized material. A gravity separation can also be achieved to remove waste. These are a simple processes, very cost effective and doe not require permitting, unlike a chemical processing or flotation plant.
How long will it take to reopen the mine and what work has been conducted to date?
We have conducted approximately $500,000 of engineering and geological work at the site and have restored and re-timbered the mine portal and conducted a rock bolting program to ensure a safe working environment.
We have engaged American Mining and Tunneling (AMT) to complete the adit safety work to allow bulk sampling and mining. AMT is an experienced mining contractor currently working on a substantial underground program on the Midas gold mine in Nevada. The work will take approximately 17 - 20 days and cost approximately US$170,000, after which we should be able to commence mining the bulk sample.
There is no need for any infrastructure at this time as all material mined under the bulk sample will be either be direct shipped to Global Metal Tech or stored for future processing.
Bulk Sampling/Mining
An operating budget of $250,000 is planned to commence the initial bulk sampling of approximately 2,500 tons and for mine working capital. While we use the term "bulk sampling" we will actually be able to conduct continuous exploratory mining. We are permitted to ship, per year, a maximum of 5,000 cu/yds (15,000 tons) of material per year from the mine site.
As we propose to use dense media separation of the bulk sample on site we can reduce the volume of material by as much as 80% with a commensurate increase in grade We anticipate shipping only direct shipping material and not exceed the maximum of 5,000 cu/yds permitted. As an example, assuming 600 tons of ore is mined per week, at 17 - 20 opt Ag, once subjected to DMS, should reduce to approximately 75 tons of direct shipping ore at 136 opt Ag, containing 10,200 - 12,000 ounces a week. In 12 months, that is only approximately 3,900 tons of very high grade rock and up to 530,000 ounces of silver.
By doing this the Company can quickly generate substantial cash flow and minimize future financings and dilution.
How realistic are our prospects?
We have conducted a substantial amount of work to date, and while this will only be a small mine, we do not have to spend a significant sum to get it up and running, so the prospects are very favorable. Because of the minimal amount of time required to complete the safety work and access the historic resource, there is minimal time risk.
Many companies wish they could generate cash flow to reduce dilution. We have that opportunity at a minimum cost, and with cash flow can grow the Company without going to the markets for dilutive financings and we expect our share price to grow as well.
Caution Regarding Forward-Looking Statements - All statements herein, other than statements of historical fact, including, without limitation, plans for and intentions with respect to the Company's capitalization, preparation of technical reports, proposed work programs, budgets and proposed expenditures, permitting, construction and production timing are forward looking statements. While the Company believes such statements are reasonable, no assurance can be given that any expectations will prove to be correct and the forward-looking statements are not guarantees of future results or performance and that actual results may differ materially from those in the forward-looking statements. Readers should not place undue reliance upon forward-looking statements and the Company undertakes no obligation to re-issue or update any forward-looking statements as a result of new information or events after the date hereof or as may be required by law. All forward-looking statements and information herein are qualified by this cautionary statement,
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