"I feel like i'll never have enough shares in this company....i'll continue to buy shares in the market and in placements." ~ $VZLA CEO Michael Konnert
Vizsla Resources (TSX-V:VZLA, OTC:VIZSF) is one of the most interesting stories in the entire junior mining sector right now. I don't know of any companies with similar market caps (~$35 million) that are developing district scale high-grade silver projects in locations with robust existing infrastructure and permits in place. Vizsla is a unique story and the company's Panuco Project in the Sinaloa State of Mexico boasts a ~9,200 hectare property package that took Vizsla CEO Michael Konnert years to consolidate into one optionable property package. Vizsla now has the right to exercise an option to acquire the consolidated minerals rights, infrastructure and processing facilities comprising the large-scale Panuco-Copala ("Panuco") precious metals camp in Sinaloa, Mexico.
Active and historical surface mapping at Panuco implies that there are more than 75 kilometers of cumulative vein strike on the property and more than 31 active and historic mines within the veins. Reportable historic drilling includes a diamond-drill intercept from one of these veins containing 2,235 grams/tonne silver and 9.5 grams/tonne gold over a 4.23 meter true width. Simply put, Panuco has both large scale and high-grade. Two things that are highly sought after in today's precious metals mining market environment.
Last week I had the pleasure of speaking with Vizsla Resources CEO Michael Konnert - the conversation was insightful and helped to reaffirm my investment thesis in Vizsla, which has had me actively buying VZLA shares since the shares resumed trading at $.45 last October.
Goldfinger: It’s great to be speaking with Michael Konnert, CEO of Vizsla Resources (TSX-V:VZLA). We're at the end of January. You guys have had a really strong start to 2020, and I read the news that you put out recently about making a new vein discovery, called the Paloma Vein at your flagship Panuco Project in Mexico. Can you tell us about that and the exploration program that is currently underway?
Michael Konnert: Absolutely. We've had a very exciting beginning to the year for Vizsla. As you mentioned, we made a brand new discovery at the Paloma Vein. We expected to make a new discovery/discoveries on the property, but the fact that we did it within the first month or two of being on the property was actually very exciting, and we're pleased to have made this discovery. So, essentially, as part of our mapping and sampling (because the district had never been sampled or mapped before), we intercepted the Paloma Vein, which is just off of the Animas structure, the most productive structure in the district. It's about a 500 meter, half a kilometer, vein structure that, at its widest point, seems to go just under four meters. That was grading at about 550 grams per tonne silver equivalent. In that was some material that graded nearly 1,000 g/t silver-equivalent. So, all in all, a very exciting, brand new discovery.
Goldfinger: So, how did you find this new vein, and do you think there are more veins that have never been found on the project?
Michael Konnert: I would say almost certainly there are more veins to be discovered. This all happened within one month. So, to get into the project. We found it through mapping and sampling structures across the district. As we continue this, we've actually doubled our efforts. We have 10 geologists in the field now, support staff of about 30. I'm confident we'll be finding more of these never before mapped or sampled veins.
Goldfinger: That’s amazing, it’s sort of a greenfields project within a brownfields project. So, to add a little context here, the project is over 9,000 hectares in total, and this is basically the work that you guys have done to get to this point of putting together a bunch of property packages from various owners into one property that ties together very nicely. So, if you're able to build ounces, find new veins, find extensions to the existing structures that you know are there, this is a very good project because it's got size, it's got scale, it's got infrastructure, there's a mill on site, there's power, road access. It's got everything. Can you tell us a little bit about the size of the opportunity that's in front of you?
Michael Konnert: The potential here is to have one of the great vein fields in Mexico, and the reason I say that is because it does compare to a Zacatecas, a Fresnillo, or San Dimas in size. It has over 50 miles or over 75 kilometers of total vein extent. I just got back from New York, where I was marketing with our VP of Exploration, Charles Funk, and every city that I go to, I like to give an example, but in Vancouver, that's like driving from Vancouver to Chilliwack, in New York it’s like driving from Midtown Manhattan all the way to Westport, Connecticut. That's the total amount of vein extent that we have on the property. So, it's enormous, and that's being added to with these new discoveries.
This large vein extent provides a lot of opportunity for high grade ore chutes and blowouts, which is what we need to build the resource and move this project forward.
We also have some very high grades. We have some bonanza grades over narrow widths, like half a meter, at over 4.2 kilos (4,200 grams/tonne silver), just under a meter at over three kilos (3,000 grams/tonne silver). But then broader intercepts, like at San Carlos, of three and a half meters at 1.2 kilograms silver. So, it's all very high grade. It's on a very large district scale. All we have to do right now, in order to essentially make the back end option payment and become a producer, through the option of the mill and all those surrounding infrastructure, including permits and ITO agreements, is we need to drill resources, and that's what we're doing.
We've announced that we'll be drilling a 14,500-meter drill program that will take us to about three quarters of the way through the year here, and that's all discovery drilling. So, we're going to be the most aggressive junior explorer in Mexico. That's discovery drilling. Following that, we'll bring some rigs onto those targets that we've defined. Hopefully we have a number of high grade ore chutes that we'll be drilling off with the resource, and that's the exciting part about this program. So, we have significant exploration underway this year.
Goldfinger: The first big thing is that you guys were able to put together this property package that had never been done in the past, from various groups who owned parts of this property. So, that's the first thing. Then the second thing that really stood out to me are the modern techniques that you guys are going to employ, or that you're employing now, which has already helped make a new discovery on the project, and the fact that the cost of exploration work has dropped considerably over the last 20 years. You're able to do large-scale sampling, soil sampling, rock samples, geophysics etc. All different other sorts of techniques, including the fact that the cost of drilling has dropped a lot, and that just makes it way more effective for you guys to systematically explore the project and make new discoveries. Can you tell us a little bit about that and what work has been going on at the project?
Michael Konnert: We used to say that we're the first group to actually explore the entire district with modern exploration techniques. Due to this new discovery that was just off of the main road, we think we're actually the first group to ever explore the district, period, with any type of systematic exploration.
So, what we're employing here will be some geophysics, but mostly it'll be exploration by the drill bit, and the reason for that is, is because of the outcropping vein. So, that's 75 kilometers of entirely outcropping veins that have been historically mapped. So, we don't need to get too, too crazy with the exploration because we have a very good idea where these ore chutes are, due to historic mining. There are 35 kilometers of underground workings already built there. So, it's an established district, but it's just never been explored.
Goldfinger: How many drill rigs are on site right now?
Michael Konnert: We've started with just one, but that number could increase in the near term, if we start seeing success or get onto an ore chute that we are willing to start drilling off for resources.
Goldfinger: How many holes have been done so far? And please tell us a little bit about the news flow that investors can expect over the coming months.
Michael Konnert: We've completed three holes so far. There's going to be some more results coming out on the sampling that we did earlier, or, I should say, at the end of 2019. There will be some results from that coming. But I think news from the project, in terms of drill results, should begin sometime in March.
Goldfinger: I would like to ask you how you see Vizsla from an investor standpoint. What's the opportunity here for investors who buy the stock at the current price range of $.75-$.80. Where do you see the opportunities for this to revalue higher as you de-risk Panuco?
Michael Konnert: I think it's completely undervalued right now. The fact is, we have the opportunity to build ounces and basically jump into production very rapidly at a major Mexican silver vein field. You've seen how Silvercrest has performed with their Las Chispas Project where they have some high grade ore chutes on their project, and it's a fantastic project. We would love to have a Silvercrest in our vein field, and the potential for that exists, because we have about seven times the total land package, demonstrations of these high grades on ore chutes. But for us, the value creation comes from drilling, executing the option, getting all the production infrastructure, and then moving into a high margin production scenario with massive, massive upside in terms of the exploration potential.
Goldfinger: From my vantage point, Vizsla offers a lot of leverage to the silver price. Because of the relatively advanced nature of the Panuco Project, you could be producing silver within a few years and the project becomes that much more valuable at higher silver prices. Tell us how many ounces you think you need to have to make this a viable project from an economic standpoint.
Michael Konnert: I think it all depends on grades, but if we were to be able to find, even on the very, very low end, 25 million ounces of silver close to that kilo grade (1,000 grams/tonne Ag) or somewhere around that kilo grade, and then if we were even able to find 50 million ounces of half a kilo (500 grams/tonne Ag), which I think should be very easy for us, that would justify the back end purchase of the mill and all the production infrastructure. Then you have the rest of the vein field as exploration upside. So, I think there's a good opportunity here for us to be in a very large category in terms of total resource.
Goldfinger: Getting a little more detailed here, you guys have mining permits in place, right?
Michael Konnert: The underlying vendors are all permitted for production, and we have all those permits under option.
Goldfinger: Can you walk us through how this might play out? So, let's say you guys have very good results this year, with the drill bit. You prove out a bunch more ounces. Fast forward a year from now, maybe you're sitting on 50, maybe 70 million ounces of silver equivalent resources that you've proven out. You decide to make the option payments to the vendor. How quickly can this project move forward to actually mining?
Michael Konnert: I would say that the mill there is operational. It's hard for me to make timeline commitments until we've got drill results back, but theoretically, using the vendors' infrastructure, there's no reason why we couldn't be producing very, very shortly after making the option payments and taking over the district there.
Goldfinger: What's the scale of the mill? How many tonnes a day?
Michael Konnert: That's 500 tonnes per day.
Goldfinger: I see the opportunity here. It's pretty clear, and I agree that your shares are undervalued, and especially in a rising silver market, the upside here is pretty substantial. $2 or $3 a share is certainly not unreasonable, and obviously if you're able to build even more scale, potentially even achieving 100 million ounces of total silver-equivalent resources, the upside is substantial. More like $5+.
The risks of the project... A lot of people point to the location. They point to the state that you're in, Sinaloa. Tell us a little bit about the location. You were just on site a couple of weeks ago. Is there any cause for concern?
Michael Konnert: I don't think so. We're 45 minutes away from the Mazatlán Airport and in a tourist bubble, so I don't have any problem going to the project. I'm actually headed down tomorrow again, and I need to stress that this isn't in the areas of Mexico where there are issues. This is nearby Mazatlán, which is a beach resort, as I said, 45 minutes from the airport there. They actually bring tourists from Mazatlán up the road to the town of Copala for tours of a classic mining town. So, it's in this tourist bubble. So, we feel very lucky, very safe there. In addition, there's a four-lane highway that runs through the project. There are a number of population centers. So, it certainly isn't remote.
Goldfinger: Please tell us about the infrastructure that's in place. If you visit the project, how do you get there and what do you see?
Michael Konnert: Well, usually when I get down there, I fly. You can typically get a direct flight in the winter from Vancouver, Calgary, Victoria. You would get out of the airport and drive up the highway to the town of Copala, and then there's a very large network of roads that intertwine throughout the project. So, it's very easy to access and the infrastructure is great there.
Goldfinger: From your perspective as CEO, tell us about management ownership and how you view shareholder value. I know you're a large shareholder and you've bought shares in the private placement, and on the open market. Just tell us a little bit about how you care about shareholder value.
Michael Konnert: I'm a major shareholder. My family and friends are shareholders. A lot of them have been involved, so I'm very driven to create returns here, but not only that, but our board and our team own about 25% of the shares outstanding. So, we're very aligned with shareholders because we are shareholders, and I'll continue to buy shares in the market and in placements. I feel like I'll never have enough stock in this company.
Goldfinger: That's good to hear and I like to see a CEO who is active in purchasing shares of his company. There is no substitute for skin in the game. Can you tell us about the share structure? How many shares are outstanding and then what's the fully-diluted share count?
Michael Konnert: We have 55 million shares outstanding right now. Fully diluted, the number is 74 million. There are some warrants. Our last financing that we did, we did without a warrant. But in June of 2019, we did a financing that was pure risk capital before we had the project. So, we incentivized shareholders with the warrant, and so I expect those warrants to be coming in. We've already brought in about $600,000 of them. We expect a few more of those warrants to be exercised. So, I'm working to clean up the share structure a little bit and make sure that we're very appealing to institutions as we go around with this first phase of marketing the story.
Goldfinger: Let me just summarize this conversation and the opportunity, from my vantage point. First of all, there's not a lot of silver stocks out there, especially in the explorer/developer category with a potentially fast track to production. Moreover, there aren't many quality ones with a really clean share structure that are relatively new to the market, and Vizsla meets that criteria in full. It's also a huge-scale opportunity, from an exploration standpoint. This is more than 9,000 hectares in one of the great silver districts in Mexico.
For those who are worried about the location, you just need to look at a mining map of Mexico. There are mining projects all throughout Mexico, especially around where Panuco is located, and they operate year-round. There's dozens of multinational companies that operate in Mexico very effectively and safely, and Vizsla is probably going to be one of them as well, in the future.
A lot of people want to own silver stocks, and institutions are hungry to add silver exposure in their portfolios. They want to get that leverage to the price of silver, and there's not a whole lot of quality silver juniors, and there's not a whole lot of them with great management teams like this one, with the sort of scale opportunity that this one offers, as well.
Obviously there are risks or VZLA's market cap would be over $100 million already. There are risks that they don't find enough resources with the drill, there is silver price risk (which exists with any junior mining company or producer), and all of the other various intricacies that comes with any mining project. However, from my vantage point, on a scale of one to 10, I would say that this one's about a nine and a half in terms of the value of the opportunity relative to the things that could go wrong, and that pretty much summarizes it for me. Michael, do you have anything that you'd like to add?
Michael Konnert: I would like to thank you for the interview and I suggest that if anyone has any questions or wants to speak to management, we're easily accessible. All the contact information is on our website, www.vizslaresources.com. Thank you.
Disclosure: The author of this article owns VZLA shares and may choose to buy or sell at any time without notice. The author has also been compensated for marketing and market awareness services by Vizsla Resources Corp.
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