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An Overlooked Silver SpecAlf Field In September 2005 the silver price was $7.50 per oz. Silver is now in the region of $13 per oz. Many silver stocks have reflected this appreciation but others have been overlooked. This is the story of one of the latter, a company presently trading at C$1.17 and for which I have a price target in 12 months of C$6.00. It is speculative and not for widows and orphans, but it could be one of the more exciting performers over the next few years. Apogee (APE) is a young company that is focused on silver-zinc-lead and gold projects in Bolivia that have both a production history and a data base of previous exploration work. The objective is to bring one or more of the company's projects into production quickly. APE has four projects that were assembled during the past year that meet the following criteria:
The APE story is as much a story of the Bolivian mining industry and the opportunities that have emerged there as it is about APE. It is necessary to delve into the history books to appreciate the situation.  Web site: www.apogeeminerals.com *APE is currently finalising a financing, issuing 9m shares at C$1.00 accompanied by 4.5m warrants at C$1.25. The fully diluted market capitalisation of C$58.5m assumes that all 13.5m of the new shares will be issued. APE should have immediate cash resources of C$9m with a further C$6m available when warrants are exercised. Returning to the history of the Bolivian mining industry, in 1952 militant mineworkers demanded better pay and conditions. This resulted in the entire Bolivian mining industry being nationalised. All Bolivian mines were then owned by the state mining company called Corporacion Minera de Bolivia (Comibol). As the years passed, under-capitalisation and under-investment on the mines caused a large decline in productivity. The number of miners declined dramatically as did their wages. Eventually the industry completed the full circle, with miners begging the Government to bring back the old system and allow the major mining companies to return. In 1995 a new mining code was introduced and foreign mining companies were encouraged to return to Bolivia. In March 2002, while travelling with my family in Bolivia, we had to be transferred by armed Army/Police vehicles from Lake Titicaca to our hotel in La Paz to avoid rioters. We then had to spend 36 hours in our hotel while we waited for our flight out as the streets of the city were unsafe due to patrolling rioters. I vowed at the time that I would never make any investments in Bolivia. Like the Bolivian miners and politicians, my views have completed a full circle. Uncertainty combined with crisis equals opportunity. For those companies who recognise the new and welcoming attitude of the Bolivians, there are wonderful opportunities available. It is a win-win situation. The country gets foreign capital investment and tax revenues. Locals get employment, often well paid jobs. There are investments in local infrastructure and support for social programs. The companies that take the risk of going there get the mines. That is what APE has done. They have accumulated 4 deposits which all look to have the potential to be company making projects. In November 2005, APE invited a few mining analysts to visit Bolivia to see for themselves what the company was doing there. Amongst the group were David Morgan of www.silver-investor.com and Bob Moriarty of www.321gold.com. I have attached a copy of David Morgan's report "800-Pound Gorilla in the making focused on Silver" for convenience. Bob Moriarty's article "The
Biggest Little Silver Company in the World" can be accessed
at: It is worth reading these two articles as they give a quick overview of Apogee and its projects. I will only briefly discuss the individual projects as they are covered in the above reports. Pulacayo-Paca Project Apex Silver was one of the first companies to recognise the opportunities available in Bolivia and Apex did a considerable amount of exploration work. Their San Cristobal silver-zinc-lead project with about 219mt of mineable resources is their flagship project which is currently being constructed. Apex also did a lot of drilling on the Pulacayo-Paca project, which is really two projects. Pulacayo is an old underground mine that in years past produced 680m oz silver and 400m lbs of each of lead and zinc. Paca is about 4km from Pulacayo and has never been mined. It is potentially an open pit project. Apex is fully stretched bringing San Cristobal into production and lacked the capacity to devote to advancing Pulacayo-Paca. This created an opportunity for Apogee to get involved in the Pulacayo-Paca project. An agreement between Apex and Apogee was signed in September 2005. The details are as follows: Apogee has the right to earn from Apex a 60% interest in the property by completing a bankable feasibility study within three years and by spending US$ 1 million in exploration within three years of the Earn-In Period, including US$ 250,000 within the first six months of the Earn-In Period. Apogee will be the operator of all work programs on the property. In the event that the Feasibility Study evidences a critical mass of resources, Apex will have the option to increase its interest in the property to 60% by developing the property to production. Apex will also have the option to invest up to US$ 1 million in Apogee via private placement during the Earn-In Period subject to regulatory approval. APE has been drilling on both Pulacayo and Paca this year with the aim of achieving a 43-101 compliant resources estimate and a bankable feasibility study as soon as possible, maybe even during 2006. The drilling work already undertaken by Apex (highlights listed below) enabled Apex to estimate mineralisation of 40m tons at Pulacayo and 15m tons at Paca. This drilling by Apex will be helpful in accelerating APE's objectives. Current drilling by APE will almost certainly result in much larger tonnages being forecast for these two projects. The following is a summary of the past drilling results achieved by Apex (yellow by me): Recent Work Completed by Apex Silver at Pulacayo, Apex Silver has completed 3,130 meters of diamond drilling and intercepted mineralization in the Tajo vein. The most significant assays reported by Apex in a Press Release dated October 23, 2002 are summarized in Table 1 and include:
*All intercepts reported as True Widths The work by Apex Silver has outlined a significant zone of mineralization. This zone has been traced by drilling along strike for 900 metres and to a vertical depth of 840 metres. This structure varies in thickness from 10 to 50 metres. Further work is warranted to outline a significant mineral resource. Other work conducted by Apex Silver includes metallurgical testing on mineralized samples which demonstrated that flotation could produce zinc concentrates containing 3.30 kg/t silver and lead concentrates containing 10.9 kg/t Silver. At Paca, Apex completed 3,448 meters of diamond drilling and 896 meters of Reverse-Circulation (RC) drilling. Some of the more significant assays reported in a Press Release dated October 23, 2002 are listed in Table 2 and include:
The following are the projected grades and revenue per ton at Apex's San Cristobal project:
Apex's San Cristobal project is slated to be a giant high-volume, low-grade mine. As can be seen from the above projections, the expectations are for only 2 oz silver, 1.6% zinc and 0.6% lead per ton. Judging from the historic drilling results, the Pulacayo and Paca projects should have grades that are multiples higher than those at San Cristobal. It seems that bankable feasibility studies should be a piece of cake for both Paca and Pulacayo, especially given the steep rise in metal prices over recent months and allowing for the fact that considerable infrastructure is already available on site from prior mining activities. My guess is that Apex will exercise its option to go to 60% of the project and APE will end up with a 40% free carried interest in the Pulacayo/Paca projects, a situation that alone should be worth a multiple of the current market capitalisation of APE. It should be recalled that when Apex signed the Pulacayo-Paca deal with Apex, the silver and zinc prices were half their present lofty levels and the economics of these two projects will have improved dramatically since then. This was a great deal for APE, still unrecognised by the markets. La Solucion Project (LS) The La Solucion Mine has been producing for the past 14 years at the rate of 40,000 tonnes per year. Production grades have averaged 20 ounces per tonne silver equivalent. The company is currently in the midst of an exploration program designed to define resources around the existing mine. The objective is to outline
2 million tonnes of historic production-grade ore in the area
immediately surrounding the mine. This would allow for a major
production expansion to be undertaken. Upon successful completion
of this objective, the focus will turn to identifying additional
resource blocks along the 10 km-long veins at La Solucion. Apogee's
objective is to identify a NI 43-101 compliant resource estimate
at La Solucion in 2006, with the goal of further expansion as
additional drilling is completed. The Hampaturi vein which is currently being mined varies from 2 to 10 meters wide and can be followed on surface for over 10 km. Considerable excitement stems from the Hampaturi vein and caused Bob Moriarty to express an opinion that it could be a potential "home run". Drilling about 5km from the mine portal has been completed and the results are awaited. Buena Vista Project (BV) The BV project is located in the historic and prolific Potosi Department in southwest Bolivia. Mining at BV dates back to the 16th century. The project hosts a known mineralization in the form of a vein system of that extends across the project for at least 1.5 kms. The structure is visible on surface, is near-vertical, ranges from 1 meter to 30 meters in width, and has been tested to a depth of 150 meters. A Phase II exploration program is currently underway following a very successful Phase I program that intersected high-grade gold-silver-zinc mineralization. The objective of the Phase II program is to outline a preliminary resource estimate in 2006. APE last month announced that it had acquired a 75% interest in the Leoplan property which is adjacent to the south-eastern boundary of the BV project. I view this as a highly significant development as it speaks louder than words of APE's management team's expectations for the BV project. The high grade BV vein system must obviously extend into Leoplan. In November 2005 APE announced results from underground testing at BV. Some of the more significant results were (yellow highlighting by me):
The exploration program at Buena Vista has involved a systematic testing of the main vein that traverses the property for 1.5kms. The program has consisted of channel sampling of underground workings followed by trenching and diamond drilling, beginning at the south-eastern end of the vein and moving in a north-westerly direction. In addition to diamond drilling (6 holes totalling 1200 metres; see Press Releases dated June 23, 2005 and August 25, 2005), surface trenching (10 trenches) and underground channel sampling (4 old workings; see Press Releases dated May 3, 2005 and May 24, 2005) have tested the vein structure along strike for over 900 metres and to a vertical depth of 150 metres below surface. The structure ranges from < 1.0 to 30 metres wide and is near vertical. As the exploration program has advanced to approach the centre of the known vein system, gold-silver grades have continued to improve. The emerging picture is becoming clearer and is one of a significant high-grade gold-silver zone, with good zinc and lead mineralization that remains open along strike and at depth. Based on the significant and positive results received to date, a Phase II exploration program, including approximately 2000m of diamond drilling, is underway to further define and quantify this high-grade zone of mineralization. Candelaria at Santa Isabel Project The mines at Candelaria at Santa Isabel have been exploited historically for silver since the middle of the 16th Century. The geological environment is similar to that of the San Cristobal Deposit, owned by Apex Silver, which is a better-known Bolivian example of this mineralization style. Apogee completed a Phase I drilling program in late 2004/early 2005 which yielded very positive showings of Silver, Zinc, Lead and Indium. The results from the preliminary 3-hole drill program confirm the possibilities for both high grade veins and potential bulk-mineable mineralization consisting of veins and veinlets. Assay results from drill Hole #1 (SI-04-01) included several significant high grade Silver-Zinc-Indium veins, including 15 metres of 252.9 g/t Silver, 13.11% Zinc, 1.36% Lead and 230.2 g/t Indium. Hole # 2 (SI-04-03) intersected 109 metres (136-245 metre) 1.11% Zn and 9.98 g Ag/t including 4 metres (136-140 metre) 3.23 % Zn and 19.14 g Ag/t and 3 metres (175-178 metre) 4.69% Zn and 19.10 g Ag/t. Hole # 3 (SI-05-04) intersected 4 metres (39-43 metre) 2.19% Zn and 59.50 g Ag/t. The significant points of interest at CS are:
SUMMARY APE is well managed. The management team and their credentials can be viewed here. The company will have adequate cash resources following the current financing which will raise C$9m and enable APE to complete its objectives for 2006. The company will have additional funds of about C$6m injected when outstanding warrants are exercised. There should be a continuous flow of news (hopefully good) from APE as the year progresses with announcements of drilling results, 43-101 resource estimates and feasibility studies from the 3 major projects expected during the year. The big drivers of the valuation of APE will be the 43-101 compliant resource estimates and the feasibility studies when they are completed. I suspect that the first project to reach the feasibility study stage will be Pulacayo-Paca, which will then require Apex to make a decision as to whether they want to go to 60% of this project, thereby picking up the cost of bringing it to production, or remain at 40%, leaving APE to bring the project into production. My guess is that Pulacayo will demonstrate resources in excess of 175m oz silver and Paca in excess of 75m oz silver. A 50% increase in tonnage at 3 oz silver per ton would achieve this target. I also guess that Apex will exercise its option to go to 60%, leaving APE with a free carried interest of 40%, effectively an attributable holding of 100m oz of silver. I would think that this should be worth $2 per oz, making this project worth $200m to APE. Companies that are at feasibility stage or actually about to mine, enjoy ratings in excess of $2.00 per oz in the ground. Pulacayo-Paca should enjoy such a valuation when it reaches the bankable feasibility stage, hence the suggestion that P/P could be worth $200m in valuation to APE at that stage. Drilling results and compliant resource estimates on LS and BV could each add say $50m to APE's underlying value over the next year. This makes my target valuation for APE in a year's time C$300m ($200m+$50m+$50m). Good exploration results during the year could make these estimates very conservative. Taking APE's fully diluted share capital at 50.0m shares, this makes my target price for APE shares C$6.00 (C$300m divided by 50m shares) by April 2007. This is a handy appreciation from the current level of C$1.17 per share. The overhang from the recent financing has prevented APE's share price from reflecting the improved valuations that must surely flow from the recent sharp rises in the prices of silver and zinc, the metals that APE will predominantly be producing. I expect that the share price will make up for lost time once the financing has been finalised. These charts depict the dramatic moves in Apogee's major expected production minerals:  
Comments may be directed to the author at: ajfield@attglobal.net Disclosure and Disclaimer Statement: The author advises that he is not a disinterested party in that he has a personal investment in Apogee Minerals Inc and has participated in the recent financing mentioned in the report. The author's objective in writing this article is to interest potential investors in this company to the point that they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell these or any stocks, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has not been paid by Apogee Minerals nor has he received any other inducement to produce this report. 321gold Inc |
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