Silver Bull Makes the Switch to Zinc

The current state of the resource market certainly demands some flexibility from those in the industry, and Canadian exploration company Silver Bull Resources (TSX:SVB) hasn’t been shy about making a change. In a corporate update released on Friday, Silver Bull announced that it will shift its focus to the zinc side of its flagship silver-zinc Sierra Mojada project.

Citing a 28-percent increase in zinc prices over the past 12 months and a favorable outlook for that metal, Silver Bull stated, “we now believe the time is right to re-examine the potential of the high grade zinc oxide mineralization.” The company will consider developing the zinc zones at Sierra Mojada as a standalone mine, noting economic benefits such as previously existing infrastructure and a functioning railway located just 300 meters from the project.

Located in Coahuila, Mexico, the Sierra Mojada project is wholly owned by Silver Bull. The company filed a preliminary economic assessment for the project in November 2013.

Promising zinc prospects

To be sure, the zinc option looks good in light of previous drill results at Sierra Mojada. Looking back to drilling conducted in 2013, Silver Bull recorded some decent intercepts, including 19.52-percent zinc over 22.85 meters, including 47.59-percent zinc over 4.4 meters and 15.65-percent zinc over 43.55 meters, including 20.26-percent over 14.5 meters. Furthermore, drilling outside of the main high-grade zinc zone at the property also intersected zinc mineralization, and the company sees a “significant zinc exploration upside.”

The zinc mineralized body, entirely separate from the silver ore body at the project, is over 2 kilometers long, 100 meters wide and 50 meters thick. What’s more, the area has historically been mined for zinc at grades in excess of 30 percent.

As for the outlook for the zinc market, Silver Bull is bullish indeed, noting lower inventories, increasing demand and a lack of new projects coming online as factors that could continue to boost zinc prices. While it’s worth noting that not everyone has jumped aboard the zinc rally bandwagon, there is certainly a compelling case for the base metal.

Silver woes?

As with other precious metals, silver has been having a tough time lately, and although Silver Bull states that Sierra Mojada is “robust … even in a volatile price environment,” the Investment Doctor is less convinced. Writing for Seeking Alpha, the Doctor states that the project as it stands would be “only be marginally profitable at the current silver price,” but is still positive overall on management’s decision to investigate the zinc side of things.

“These are tough times for the mining sector, and Silver Bull isn’t escaping from this,” he stated, “so it’s a wise decision to investigate whether or not the zinc zones on the company’s land package could be developed as a stand-alone zinc mine.”

Also commenting on Silver Bull’s silver prospects, Ben Kramer-Miller stated in a Seeking Alpha article from September 10 that it would be unlikely for Sierra Mojada to be developed in the current market environment. Though the author did not seem to favor investment in the project, he was bullish on the the white metal, and saw Silver Bull as “a compelling way for investors to get leverage to the silver price,” taking a position in the company himself.

Strong cash position and hard work

One thing that everyone can agree on is Silver Bull’s strong cash position. The company currently has over $2.1 million in cash and is expecting another $1.5 million when it sells its Ndjole asset in Gabon within six weeks. Kramer-Miller stated that Silver Bull has done “an excellent job keeping costs to a minimum, as the Q2 figures show us,” while the company stressed its commitment to lowering costs for Sierra Mojada.

No doubt, Silver Bull has been pushing ahead with the Sierra Mojada project this year despite the economics being hurt by weak metals prices. In addition to continued exploration, the company obtained water permits necessary for the project and secured surface title for 780 hectares of ground around the main deposit.

What’s next?

Silver Bull’s share price has suffered in recent years, mostly in tandem with silver price declines, but with a new focus on zinc, it certainly seems like things could be looking up for the company.

Currently, Silver Bull is preparing an exploration program that will target a possible extension to the existing high-grade zinc zone at Sierra Mojada. Interested investors — especially those who are bullish on zinc — will no doubt want to keep an eye out for the program and for what sort of results Silver Bull puts out.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.