Vizsla Silver (VZLA.V)  -  Fundamental value silver project seeks contrarian investors for multi bagger returns.  Must be patient and willing to focus on the narrative while ignoring short term price movements.

Some years ago I attended the Metals Investor Forum in Vancouver, and saw a presentation for a junior gold exploration company in Red Lake Ontario called Great Bear Resources.  I bought a small position and as I followed the news flow, it grew to be the largest position in my portfolio.  I decided to trust CEO Chris Taylor, who was talking about a buyout by a senior producer quite early in my time investing in the company, and I held on through the Great Bear Royalties spinout and subsequent takeover by Kinross.  It was the first time I had made a substantial investment in a junior exploration play, and what struck me over the three year time period was how consistent the good news flow was about the Dixie project for Great Bear, and how the share price and company valuation often bore little relationship to the ever increasing value of the gold in the ground.  Companies like Great Bear are very rare in this industry, but even when it was clear that it was going to be a Tier 1 mining project, there were still opportunities to get in at bargain valuations.   A lot of people bought in and held Great Bear for a period of time, before getting discouraged and selling out.  Some people stayed focused on the value adding narrative of the project, and were still in the stock when the buyout happened.  Small, medium and large fortunes were made.  

By the time Great Bear was bought out,  I had had my eye on Vizsla Silver Corp. for a couple of years.  Vizsla Silver has the Panuco district in the Sinaloa district about 75 kilometers north of Mazatlan in Mexico.  Vizsla owns 7200  hectares of this mining district with a 400 year history  of local small scale operations.  There is road access by two highways with power, water, and existing permits in place.  From a standing start, the team at Vizsla found over 100 million Ag equivalent ounces in two and a half years, and in less than two more years they tripled that resource to 326 million ounces as of September 2023 with rich  grades averaging 471 gpt Ag equivalent.  There are 156 million ounces measured and indicated and 170 million inferred.  This is precious metals dominant resource at 60% silver, 30% gold and 10% base metals.  It's the largest undeveloped primary silver project in the world. 

This is a big land package, and exploration has been focused on the western third of the property.   About 60% of the property has been mapped,  but only about 10% of the known vein extent has been drilled.  Not a single road has been built, part of a highly efficient exploration process with an all in discovery cost of only U.S. $0.32 per ounce.  The flagship structure on the property is the massive Copala vein,  with 130 million Ag equivalent ounces so far, along 1770 meters of strike and 440 meters down dip with an average width of 10 meters.  With the vast majority of the project relatively unexplored, it's no wonder that chairman and super booster Craig Parry talks about Vizsla joining the exclusive club of billion ounce silver mines in the future.  

Speaking of chairman Craig Parry, he's a cofounder of Inventa Capital, chairman of Skeena Resources and a founding director of NexGen energy.  He is part of a stellar team of management, directors and advisors on this project, including CEO Mike Konnert, co founder of Inventa Capital and former CEO and cofounder of Cobalt One Energy Corp.  Dr. Jesus Velador serves as V.P. exploration with local experience most recently as Director of Exploration for First Majestic Silver.  Eduardo Luna is on the board,  President of the Mexican Mining Chamber, member of the Mexican Mining Hall of Fame.  Advisors include Dr. Peter Megaw, legendary expert in Mexican silver mining with 40 years experience.  The recent addition of Simon Crmlec as COO with over 30 years of mine development experience with a Latin American focus speaks to the ongoing transition of Vizsla Silver from exploration play to mine developer.  This team has a wealth of exploration and mining expertise,  along with expert representation from the Mexican mining industry.  

Speaking of mine development, there are currently four drill rigs on the project, two are de risking the Copala and Napoleon veins drilling on 12.5 meter centers,  and two are working on exploration drilling.  The four drill rigs are down from a high of thirteen on the project, with resources shifting to some exciting project milestones.  Currently underway is a test mining/bulk sample project, a fully permitted process centered on the Copala and Napoleon veins.  It's not difficult to see that when mining commences in earnest, it will begin in the shallow rich grades that make up these two veins which will optimize the recovery of capital costs.  2024 will also include a royalty spinout,  the preliminary economic estimate and an updated resource estimate.

The royalty spinout is a great way to reward existing shareholders, and looks to be the same model and strategy as the highly successful Great Bear Royalties.  Existing shareholders will receive one share of Vizsla Royalties Corp. for every three shares of Vizsla Silver Corp they own, and a 1/3 Royalty share warrant for each Vizsla Silver Corp share on the yet to be announced date of record.  Vizsla Royalties will own a 2% net smelter royalty on the property, and will exercise buyout option on existing royalties or received a lower royalty on land with an existing but smaller royalty.   Not just a shareholder reward, it also discourages a premature takeover bid.   The PEA is expected in August with another updated resource estimate in H2 2024.  

Mexico as a mining jurisdiction has been in the news in recent years, so I have talked to CEO Mike Konnert about some concerns I have.  It's worth pointing out that Vizsla isn't part of the focus of recent regulatory initiatives.  The Mexican government is concerned about granting long term exploration concessions to companies that proceed to sit on them and not take any significant action.  A second concern is about the environmental impact of open pit mining, and in particular water usage.  It's worth pointing out that Vizsla Silver is operating in a mining district with a 400 year history, and ESG initiatives are at the core of what they do.  Exploration, access and thirty year operating agreements are in place with all five local ejido groups.  70% of the workforce is from the local community, and proper consultation is in place.  Vizsla has taken the lead in holding local community medical fairs for 300 locals providing access to doctors, nurses and mental health professionals. Vizsla won't have an open pit operation, and there were some permits in place on the project at the time of land assembly.  The current test mine is fully permitted.  In terms of personal and personnel safety, there are two highways running through the Panuco district that are regularly patrolled by the police and the Mexican army.  There is no extraordinary security on the project and management routinely bring their families to visit the site. 

At the beginning I mentioned fundamental value and multi bagger, and talked about my previous experience in a successful speculation in Great Bear Resources.  I'll start with a brief look at the macro picture, then get into what I believe is a compelling case for a significant position in Vizsla Silver.  I regularly attend investment conferences, and I like to look at more than fancy presentations of world class projects.  I like to talk to CEO's in person, not just for the data but for mood, the confidence and the conviction.  I like to talk to fellow investors, share war stories, more recently commiserate.  We all know how tough the junior exploration and mining sector has been, especially how brutal the last two years.  I attended the Metals Investor Forum last September and it was frankly depressing.  Attendance was poor, there was no energy in the room, and investors were like the walking wounded.  

Fast forward to the Vancouver Resource Investment Conference in January, and in the wake of Jerome Powell's specific comments about upcoming interest rate cuts there was record high attendance, a huge number of first time attendees, and standing room only at the presentations.  There is a clear path to the next bull market in precious, base and rare earth metals from a demand supply perspective.  The most anticipated U.S. Fed rate cut in history is coming in the summer.  U.S. money markets have had a $3 trillion inflow since the cycle of increasing interest rates was set in motion.  As certainty about the first rate cut increases, we already see capital moving.  A combination of falling interest rates, rapidly increasing U.S. federal debt in an election year, ongoing geopolitical instability,  and record high central bank purchases of gold add up to new all time highs in the nominal price of gold this year.  Already happening.  And the price of silver usually follows in a gold bull market, later and more dramatically.  Aside from the precious metals bull case, silver is being consumed faster than it is being mined for the last three years, as increasing investment in solar technology with ever increasing use of silver in solar panels drives a boom in demand. 

I believe there's a strong case to be made that we will be in a different metals market by the end of this year.  It doesn't take a large shift in capital to move a small sector like the junior metals market.   There is a rising tide on the way.  But it will not raise all boats equally.  Majors will double and triple, and some juniors will do even better.  But the real money will only be made in the very best quality projects, and I believe that Vizsla Silver will come out among the leaders on a risk/return basis.  It is very difficult to focus on the narrative when the market valuation seems to ignore or defy news that adds value, but a lot of money can be made in the waiting when you are invested in a world class project. 

Vizsla doesn't have the thirty bagger potential of a highly uncertain early exploration story, but in this position I'm not relying on luck.  To put it in the simplest terms, the current market valuation of Vizsla Silver is around 80 U.S. cents per ounce.  The company is valued at around U.S. $250 million.   CEO Mike Konnert describes Vizsla as "criminally undervalued," and while he's in good company in the junior mining sector he's not wrong.  In terms of the Lassonde curve, a reasonable time estimate is that Vizsla will be in production in three years, or will be bought out by a mid tier or major producer before then.  Looking at Vizsla's peers in Mexico that are close to or in production, they are valued at an average of U.S. $4.67 per ounce in a badly beat up sector.  Vizsla looks like a 5x valuation in the medium term, if the junior silver mining market remains in these unfavorable conditions.  That's a great medium term return on a project that is a standout in the number of ounces alone. 

Vizsla has a huge, fast growing high grade resource with a highly efficient exploration process in place, run by a highly motivated team with significant and growing skin in the game, with a modest valuation in an out of favor sector of the market.  That's the fundamental value.  There is no question that this exploration project will be mined within a few years, and with a PEA and updated resource coming in H2 of this year, the value addition process moves to a new stage.  De - risking is ongoing, and progress in mine development is well underway.  For an investor with a medium term timeframe, looking for a company with a very limited downside and a bright outlook on the upside, I think Vizsla Silver Corp. is a great company.  Should we see a proper bull market in silver, with a price over $30 an ounce I have to believe that Vizsla will be top of the list as a takeover target with great returns for current investors.  As we say on the bulletin boards, GLTA. $VZLA

https://vizslasilvercorp.com/investors/presentations/

Disclosure: I have a beneficial long position in the shares of one or more of the companies discussed in this article, either through stock ownership, options, or other derivatives. I wrote this article without external assistance, and it expresses my personal opinions. I was not compensated for this article, and I have no business relationship with any company whose stock is mentioned in this article.