Please enjoy an extended conversation with Mr. Fred Davdison, President & CEO of IMPACT Silver (TSXV:IPT). This was my first time hearing about IPT and I was very impressed. A small silver miner in Mexico with no debt is always a good place to start, but surviving doesn't get markets excited. A massive discovery just might! Please note this is not sponsored content.  

Fred Davidson: Fred here, the area has been in on-and-off production for over 500 years. To date, we've mapped over 5,000 old workings on the site. Those workings extended from the days the Aztec were busy mining their to the conquistadors, on to relatively modern times, primarily, chasing the silver. More recently, we're also starting to aggressively look at one section of the property which seems to be in higher grade gold right now. That's one we're pursuing. In fact, we're drilling one of the smaller targets right at the moment.

Peter Bell: This is Peter Bella I'm here with mr. Fred Davidson and Jerry Huang of IMPACT Silver. Thank you very much Fred for telling me about some of the current drilling. I've seen the recent news release there February 19th just a couple days ago. I didn't get the impression that it was a smaller target, is that what you were referring to?

Fred Davidson: It's actually a vein system. Veins in the area, in a deep canyon, seem to be radiating out from what could be a porphyritic target below. That's why I say it's a smaller target. We find veins and make a lot of money mining the veins. The porphyry is the blue sky at this point.

Peter Bell: Ah, wonderful. So many questions and things to discuss. To start with a porphyry, there is mining of porphyry copper in Mexico but that's not your focus.

Fred Davidson: No. We have been mining the vein systems very successfully over the last number of years. Some of them are probably related to this porphyry, if it's there. Some of them from other mineralization in the area. The density of veins is incredible. We literally describe them as swarms as opposed to individual veins. That's in northern part of the property. As you go south, we get into volcanogenic massiv sulphides. As Jerry mentioned, we have a second mill that we built as a pilot plant and tested a deposit down in the southern end of our property. It's a VMS, a medium-grade type VMS that is fairly sensitive to the price of silver. We've done a fairly extensive amount of work on it. We bulk-sampled it have tested the backs on it. The numbers are there. We're very confident of the metallurgy, etc., but at this point in time we need a higher price of silver to really make it go. That area is still wide-open for exploration. There's at least two other targets of VMS targets in the immediate vicinity of this particular one, the Capire. Again, we're target-rich. It's just like little kids, we can't figure out where to spend the money first!

Peter Bell: Exactly right. And being a pure-play silver producer and having a porphyry copper target -- that's not the focus.

Fred Davidson: Again, I emphasize that it's unclear if the porphyry is there. We're certainly seeing smells of it. As we go to depths on our veins, we go from very high-grade silver on surface -- and that's not secondary enrichment, that's basically sulphides -- where you get a kilo or two kilos at surface then maybe 250-300 meters at depth the silver falls off and we get into lead-zinc. Once we get beyond that, there's sort of a dead area with lower grade and then we get into this gold and gold-copper range. What's making it interesting is that we've seen that in underground mining, but this particular canyon exposes the opportunity to get down 250-350 meters. At surface, we're seeing the gold and copper that we see at depth underground. It's a very interesting area. There's so much exploration potential. We have tested, maybe, 10% of the entire area we have.

Peter Bell: Amazing to hear about exploration with old news releases going back to 2014 and 2008 -- not just the old mines going back hundreds of years but within your tenure.

Fred Davidson: It's been described as a bootstrap operation. The initial raise was literally to buy the property. A good percentage of the money spent afterwards was funded from operations. Because of fluctuations in the price of silver, the American dollar and the peso, we tend to sort of go back-and-forth from one vein to another vein and mine, proportionately, what makes sense in terms of numbers. There's still a lot of stuff underground there that we haven't mined simply because the price of silver has dropped. We'll go back in and chase it with the prices upticks. The mill we've got has a capacity of about 650 tons a day. We're mining at above 400 because we're basically going for higher-grade material reflecting the lower price for silver at this moment. We've got a lot of opportunity to pull from here and there whenever we feel that there's better grades needed.

Peter Bell: Mine fleet, underground drill rigs, and everything like that, is that all your own equipment?

Fred Davidson: Yes, except for exploration drills, all the rest is ours. I've got to admit it's not particularly pretty. The nice thing about Mexican miners and the engineers that work with them is they really know their stuff. They can take a piece of equipment that most people would discard in North America and they can make it work very efficiently in Mexico. They do a heck of a good job. They are high-quality miners, high-quality engineers. We are 100% Mexican down there, with the exception of the Canadian geologists who do the 43-101 reports. We are recognized as a Mexican company by the local community, the government, and, as a result, they've been very fair with us.

Peter Bell: Certainly. Wonderful to hear it. I wonder about safety. Any information on the operational side there?

Fred Davidson: As I say, we've been operating there for a long time. We've never had an incident. It's one of those situations where I think people probably don't recognize the difference between the conflicts that may be occurring, primarily amongst the guys who are trying to ship illegal things out of the country, and locals. We go out of our way to make sure we don't trip over them. They seem to be going out of their way so they don't trip over us. The end result, as I say, is that the whole time we've been there we've never had an incident. I don't think we will. The way we work with the local community is important -- we're the biggest employer in the area. We've got about 260 employees on site. They're all locals and they tap us on the shoulder if they think there's an issue and say, "let's be a little quiet in that particular area we're working and we do it." We've never had a problem.

Peter Bell: Neat to hear you mention it all, Fred. I was thinking underground mine safety!

Fred Davidson: Well the reason I mention it is that people raise that all the time. Mexico is actually a good place to work in terms of mine safety. This is about the 4th underground mine I've been involved with. What makes this exceptional is that the ground is extremely competent. We have to do very little rock bolting, very little screening, and the other part of that very competent rock is when we take around a blast the vein tends to fall very neatly from the wall rock. We take very little dilution. There seems to be a vein and then about an inch, inch-and-a-half of what you'd call gouge, and then the host rock. When you blast it, that gouge seems to absorb the the blast. After you've been mining there, you can run your hand over it and not cut your hand -- it's so smooth. Ideal mining conditions.

Peter Bell: Great to hear you say that. To hear you say fresh sulphides from surface with high-grade silver material, it's puzzling to me -- where's the oxidation?

Fred Davidson: Very nominal. We don't experience very much oxidization in the area. Having said that, there are one or two veins that we are actually not working on, which have some significant oxidization. The bulk of where we're mining doesn't. You might get it down 5 or 10 meters and that's about it. Once in a while, we find an old working where somebody, maybe two or three hundred years ago, was working on the oxides but we get very little oxidization for the most part. When we get a grade in the floor of an old working, a lot of our exploration is going into these old workings, it tends to be sulphides. There's been a couple of situations, like at San Ramon when we first went in there at the very start, they were direct-shipping the ore to the smelter. It was so high-grade.

Peter Bell: That's the story of a lot of these old minesm, right?

Fred Davidson: Oh, yeah. It's interesting because you go in and there's a fair bit of water -- nothing you can't handle nowadays -- but when somebody was de-watering with a leather bucket it was probably too much. We'll drain one of these old workings and find a kilo in the floor! I guess he decided it was too much to handle with the water flows. It's a very attractive area to work in.

Peter Bell: I wonder about the flow sheet. It looks pretty simple from what I can see at the Guadalupe production center. Basic photos of the ball mill and flotation circuit.

Fred Davidson: Yes, we've got a jaw crusher at the beginning. Then, we've got two cone crushers. From there, we've got three ball mills. The floats now are recovering only a lead con. There's not enough zinc and most of the silver reports to the lead. We don't take it beyond the lead con, which gets around all sorts of issues. We're getting some pretty good returns on that stuff. Very good recoveries. We're happy with what we're seeing at the moment.

Peter Bell: Cash flows and cost numbers?

Fred Davidson: The all-in costs or sustained costs are probably about a dollar above the current price of silver right now. That's an all-in, sustained cost. We're working on getting that down with some redundancies and moving out of some of the workings that are slightly lower-grade and into the higher grade workings. These things are not like flipping a switch, as you know. It takes a good three to six months to re-orient what you're doing. That's what we're in the process of doing right now. We have to learn to live with the current prices and we think we can.

Peter Bell: Seems like a lot of the global production is questionable. I wonder about that cost curve for silver.

Fred Davidson: Yes. The main thing for us is that it slows down our exploration. We've got a massive property 353 square kilometres and the problem is that we've probably explored 10% of it, 20% max. It's very frustrating because exploration, other than sustainable exploration, is an elective. When you're tight on cash, you don't do it. We're actually quite pleased with our recent raise, as it allows us to get into drilling that target right now, which is a gold target. Then, we're going to be drilling another silver target, as well, aiming for the higher grades. The old theory is that you want to put it through at a profit. That's gonna be the objective.

Peter Bell: Find high-grade material where you can and mine it!

Fred Davidson: That's exactly right. We've had one mine, Chivo, that was running at over 700 grams a tonne. We had a couple of good years of production out of that mine. Then the grade fell off as the silver price fell off at the same time. Chivo is sort of on care and maintenance at the moment, but when you run into those sections and get a chunk of something like that you can easily develop half a million or million tonnes. That makes us all happy. And the mill guys are dancing because the recoveries tend to go up with higher grade.

Peter Bell: Nice. It's a hungry mill, keep it fed. 5,000 documented old mines and prospects that you've catalogued there? It would seem that it gives you lots to pick through in the search for high-grade. I wonder how much of those you've done kind of grab or channel sampling?

Fred Davidson: 20%. It might be a little higher than that because we've done some soils and grab samples, but I don't regard a grab samples as other than indicative of what might be there. At a lot of the veins, if we do grab then it comes back as ore because the geologists always pick the good-looking rock. If they are doing a channel sample, then that's a different animal. Good grab samples? Okay, we'll go out and take another look at it. There are whole areas of the property that we've never even been to.

Peter Bell: I see off to the southeast they're all that blue sky with no veins marked or anything quite yet. I'm sure there's some reason to expect continuity. I don't quite know what the relief and topography looks like there.

Fred Davidson: It's pretty vertical, let me tell you. If you stretched it out, then it would probably be about twice the size. We actually found some old mine maps that were about 250 years old and the guys went out to try and relate where this darn thing was. They were driving out there and it took them four-and-a-half hours to get there. They discovered old workings, probably related to the Spanish era but we're not sure. And a couple mills. Again, it's one of those areas that you'd make a whole story about if you were another company. We only did one campaign out there and haven't been out there since.

Peter Bell: Then, I'd ask -- why Santa Teresa?

Fred Davidson: Well, Santa Teresa is interesting because it's got the gold. About 300 meters above it, we were drilling a silver vein and encountered an up-lifted gold vein. That up-lifted gold vein looks like it was 250-300 meters vertically uplifted based on stratigraphy. It averaged three grams. I think the highest grade assay we got in it was 20 grams gold. We looked at it and looked down the steep hill -- about half a mile away, down at the bottom of this steep hill is Santa Teresa. We're looking down there, saying "Okay, if that's continuity then this is a hell of a target..."

Fred Davidson: And Santa Teresa is on the hillside, so it's relatively easy to explore. You don't have to do a lot of trenching because it's exposed. In fact, the exposure on surface was 50 meters if I recall. It ran about six point five grams gold over about one point six six meters wide for that whole distance. That's a fairly attractive target. The nice thing is that it was exposed at surface on about a 30 degree slope. There is some continuity there.

Fred Davidson: In the area, we're finding porphyritic rock. We're finding gold-copper. We're finding copper itself. It's just a very interesting area and we focused on this one particular vein just because we had exposure over that 50 meters. I'm not saying it's going to be the end-all be-all, I'm just suggesting that it's sort of indicative of what we can find here with the literally hundreds of samples we did grab in the area that were running one gram or better.

Peter Bell: Wonderful. I wonder where it is property-wide? Is it up by the Guadalupe mine there or is it down to the south?

Fred Davidson: It's near the Guadalupe. You could access the Guadalupe with it. The Guadalupe could handle it, if in fact we decide to mine it. We did run the Carlos Pacheco, which was another gold vein we found near surface, and got good recoveries on it. We may even do some batch mining if this thing is real. Between the Carlos Pacheco and the Santa Teresa where we have a day a week or a week a month where we strictly do the gold.

Peter Bell: I see it there. Yes, just south of Carlos Pacheco. Thank you. That is an old producing mine. And looking at the main veins indicated, I see a bunch of northwest-southeast trending veins but it looks like there's something happening, geologically, there. Seems the angles things are changing.

Fred Davidson: You got it. There are two major structures running through here that are northwest-southeast. One of the geologists described to me, rather classically, that you can imagine a block of cheddar cheese -- push on one side of it and pull on the other side and you get a fracture zones laddering that goes north-south. He said that all of that occurred pre-mineralization. The north-south ones tend to be the more exciting ones, although the ones that run northwest-southeast tend to be the bigger ones. Some of those bigger ones run, literally, kilometers. We have one viewpoint where you can look out and, basically, for about three- or four-kilometers one vein runs over the hillside.

Peter Bell: And you zoom-out even further than that, right -- you see Taxco, your property, La Guitarra, Angangueo up there further to the northwest.

Fred Davidson: You got it. As a matter of fact, a lot of our guys have worked at Taxco. They can actually identify some of the big veins. It's a big area with very strong structure coming through. Especially as you peel off of the north-south ones. I'm not sure if there's a secondary occurrence that created those with high-grade, but they are particularly high-grade.

Peter Bell: And the good news from an exploration perspective of you tackling an area like that is that you can do some of the met testing yourselves, you have teams of geologists and experts who already know the the area well. I see you appointed Jim Oliver as a consulting geologist.

Fred Davidson: We got you Jim there in case our guys become sort blinkered. You know how you can get blinded by working on something for a while. Jim was an ideal guy because he sort of sat back and looked at the data -- our data set is huge. We've incorporated all those old maps and every sample that's ever been taken in the whole area. It literally burns up a computer every once in a while. The problem is you get so caught up in the detail and maybe lose perspective. That's why we brought in Jim. He's technically one of the most competent guys around.

Peter Bell: Think bigger!

Fred Davidson: Yeah, exactly. In fact, he was pushing that, "think bigger". One little target we're drilling will, theoretically, support some of his theories.

Peter Bell: I wonder about the mineralogy and stuff, too. As you start checking what might be in there with indications of things coming from greater depths -- some of these bigger geological ideas might be at play. Wholly out of my depth, but I'm glad to hear the experts are on the case.

Fred Davidson: I tend to be more mining-oriented. I always laugh because the geologist, invariably, after you've mined it will tell you why it was there. I'm going to get abused by some of the geologists when they hear that, but it's true.

Peter Bell: It's a challenge with these different disciplines. The engineers, the geologists, changing between the two -- who is in the leadership role in the company has a big effect on where the company goes.

Fred Davidson: That's exactly right. I have to sit between the two of them and translate.

Peter Bell: Having Jerry in the mix helps. A younger guy with business training, I'm sure he helps keep the feet on the ground. George Gorzynski, great to see him in the mix too. Another engineer.

Fred Davidson: He's a geological engineer, too. He steps between the boat and the wharf, at times. It's an interesting group. As I say, it's such a big project -- it's like you've got your hand in the cookie jar trying to take all all the cookies at once. It's very difficult.

Peter Bell: And you're a CA and CPA.

Fred Davidson: Well, don't hold that against me. I'm a nice guy.

Peter Bell: Sorry to bring it up in polite company!

Fred Davidson: I got into this when I was teaching at UBC. This is the 4th underground mine and the fifth mine I've been directly involved in. It gets into your blood, as you know. This one just has all the right smells about it. The size potential, type of mining, and overall comfort level you look for when you're trying to develop a project.

Peter Bell: I like to say sometimes that exploration is a terrible business and the only thing worse is production. You guys would know that very well here with current pricing environment.

Fred Davidson: Yes, has it been touch-and-go.

Peter Bell: Has there been any point with the risk of financial distress?

Fred Davidson: Well, we have enough people who believe in it so that it doesn't get too critical. We got a little low in the cash and did a quick raise of $1.7 million. I didn't really want to do it, but it was available and I always like to have a million in your back pocket because it's a business you can go through millions very quickly. Up till recently, over 50% of all the work has been paid for out of operations. Those operations support a lot of the geology like the mine lab, which does a lot of our laboratory work. Stuff that we can't publish, of course. The vehicles, the equipment supply, the support accommodations -- all of that is taken care of in the mining cost. It helps give us extra leverage.

Peter Bell: So many issues that come along with that. For an exploration company every sample they send off to the lab is probably material news that they'll want to press release. To think that you as a producer may have exploration results that you might have that you're not able to really communicate broadly, that adds a whole bunch of mystery to the situation.

Fred Davidson: I guess it does. The number of targets we're looking at is so huge if we published every one, I think everybody would fall asleep. What we try and do is publish those that we think represents something, whether it be a geological interpretation or direction that we're working in. The sort of day-to-day stuff we do with soils, rockchip sampling, and that -- we normally don't even mention it. We did mention this at the Teresa area because we had over a hundred samples, I think, that ran over one gram of gold. Now, that's what we regard as significant. And it answers the question, "why we are chasing gold?", well we had this massive number of samples that were gold. For the day-to-day stuff, it's just a part of production.

Peter Bell: Exactly. Again, the questions around the financing -- how many times have you come to the market for equity finance?

Fred Davidson: Over 12 years, it's four times or five times maximum. The first one was to buy the thing, so that's really three or four times where we've actually put money in into the ground.

Peter Bell: Amazing to see no debt on the books.

Fred Davidson: Well, this business is one of those tough businesses. Debts exposes you to the problems of debt. You get leverage from it if things are going well, but you get kicked in the butt if things aren't. We tend to be fairly conservative with our balance sheet.

Peter Bell: Good work. Any shareholder rights plan or anything like that?

Fred Davidson: Not really. I guess we should look at it. The focus up till now has been to create value and, quite frankly, tying up lots of our time. A rights plan, we can always implement one if we get it somebody sniffing around. This is a funny market right now as nobody's doing an awful lot at the moment. One of the things you do notice is that we don't have a very large resource. In fact, the only resource we have is on the VMS. Even though we may have mining plans out three and four years, none of that is a resource for 43-101. In fact, what we've mine we can't even call ore. But we've been mining this rock for 12 years.

Peter Bell: Thanks. If any of the Canadian regulators happen to be listening or reading a transcript of this, I'd hope that would give them pause.

Fred Davidson: I understand the need for it. Our problem is that we had to spend money interpreting the whole area or you spend money sort of picking this scab and defining a very small resource. It would have taken our cash to do that. We try and spend our money wisely from a mining point of view. For instance, in these veins we generally will do 50 meter centers just because we know, historically, in this whole area 50 meter centers is adequate. At that point in time, we go underground because our mining costs are so low. Perforating the thing full of holes doesn't justify when we can go underground and actually start mining it. It's a different strategy and I understand where they're coming from. They've got to do something to regulate it, we just live with it.

Peter Bell: Amazing to think about these veins stretching along for kilometres there without a lot of disruption -- that's the 50 meter centers, as you say. I wondered how much information is out there about developmental costs or any of the operational details?

Fred Davidson: We try and provide most of it in the quarterly. I think we give fairly complete info. We've always gone for high-end advisors, like Price Waterhouse etc. I think they're happy with our disclosure. We've got three 43-101 geologists on the project, so I think our disclosure there is more than adequate. It's just one of those things that the rules are such we have to do it the way we do it and live with that. We do. We have taken mine tours on a regular basis, especially when there were analysts. We believe the best thing to do is to walk people over the project. As you've seen, we've done a home-made version walking the mill and everything else on the website. It's a cheapo tour, but that's all we can do, realistically, without going bankrupt. Going forward, we will probably do the same thing and just keep on demonstrating that this thing is very real.

Peter Bell: Certainly. I wonder about dividend or anything like that. I'm sure it's been the subject of conversation in the past.

Fred Davidson: Right now, it's obviously not in the cards. The dividend is going to be a function of cash on hand. We do have that sort of balance between spending the money on dividends, which will give you a bit of an uptick in the market, or spending the money on exploring the other 80% of the property we haven't even walked on and hopefully getting even a bigger uptick in the market! It's a balance that we're looking at. I don't think most people buy us for dividends. I think they buy us, even though we're a small producer, for the exploration potential and, of course, the leverage we get as, probably, the purest silver play in Mexico. 90% of our production is silver -- when the price of silver goes up, it translates right to the bottom line for us.

Peter Bell: Again, the shareholder rights plan -- it's one thing to be fairly tightly-held, but the silver space is competitive and probably increasingly.

Fred Davidson: We're fairly broadly held by a lot of retail, which is kind of neat. We've got a couple of institutional's in there, but for the most part I think we trade fairly cleanly. In terms of volumes, it's definitely an emotional volume out there -- silver prices go up and all of a sudden you get phone calls from people you haven't heard from in six months who like silver. It's very leveraged.

Peter Bell: Certainly. Fred Davidson, President & CEO of IMPACT Silver Corp. Thanks very much for talking with me.

Fred Davidson: Good to talk to you. Have a good day now.

Learn more about the IPT on their website here, http://www.impactsilver.com/s/NewsReleases.asp