Company Update: AbraSilver Just Keeps Growing
CEO John Miniotis joins me to discuss Abra's ongoing drill campaign, how to succeed at the M&A negotiation table, and what signs there were from the beginning that Abra was something special.
tl;dr:
AbraSilver (ABRA.V) is a well-known name in this industry, and for good reason. It’s Diablillos project is big, high-grade, and full of potential. For some companies, an annual update might be enough to stay up to date. Not so with Abra. CEO John Miniotis fills me in on the many different important pieces of news Abra has released since we last spoke, such as a PFS, a share rollback, a deal with Kinross, and an ongoing exploration program which in part promises to drill out some truly blue sky targets.
See below for my interview, companion article, and written summary.
Part 1: The Interview
Part 2: The Companion Article
Sometimes there are projects which have a strong resource, compelling assays, obvious potential, but you just can’t see a throughline to a happy M&A ending for them. Whether it is permitting risk, wrong location (too close - or too far away), metallurgical problems, or political instability - there are countless reasons for any random deposit to stay in the ground, despite its promise. Not so with AbraSilver and its Diablillos project. Rather, I would argue it is one of the leading candidates for M&A this coming cycle, given its envious combination of size, grade, immediate and obvious expansion potential, and jurisdiction.
I have sat down with CEO John Miniotis a couple times before, but we were overdue for an update, given how much Abra has been up to the past year or so. Just to recap:
A new PFS with some very healthy economics.
A $20 million strategic investment by Kinross and Argentinian utility co.
A 5:1 share rollback to tidy up the float.
A new 20,000 meter drill program they are now roughly halfway through.
John and I chatted on all these topics, but just as a quick recap of the PFS, take a look at the info below from Abra’s slide deck:
I am pleased by Abra’s transparency as demonstrated on the above slide (no doubt easier to do when your economics are so strong). In a world where you can get 4-5% risk free from government bonds, NPV5 for a gold company is awfully optimistic/unrealistic. Nevertheless, it remains industry standard so you can’t justifiably single out any one company to critique for continuing to use it (and Abra does here). However, how many other PM companies openly put NPV8 calcs in their slide deck? Many technical reports don’t even provide NPV sensitivities at all, so for Abra to put that number in their slide deck is admirable.
Below is the summary of the PFS basic economics. Note the positive NPV:Initial Capex ratio, even at lower gold prices, as well as the not-so-great strip ratio (which John explains quite reasonably - see summary below. Short version is that with a little bit of very realistic development, the strip ratio will drop to 3:1).
Lots of people are focused on finding leverage to the underlying commodity price, which is of course at its face a reasonable and intelligent deicsion. However, I believe it can be taken too far to be considered a “smart” investment strategy (vs. the more gambling-styled speculation that also is at home in this sector). I say this because without moderation this thought process inevitably drives you into projects that are economically marginal and need those higher prices to justify their viability, and at lower prices hold negative value. Of course, timed properly, this can be incredibly fruitful, as the most marginal projects have the most to gain from a commodity bull run. However, it is also inherently risky, as anyone who has tried to time the market can tell you.
My point, such as it is, is that strong projects like Abra provide plenty of torque on their own (take a look at the sensitivity chart below) without the downside risk of trying to time investing in more marginal projects.
My strong personal preference is to avoid investing in any company I would regret being stuck holding long term were my macro theses proven incorrect. This is especially true in today’s depressed market, where you don’t have to head to the bargain bin to find deals. Position sizing accordant to risk matters. And to me, the risk of weaker projects is rarely worth the reward, and is a common retail trap.
Diablillo’s status as top-shelf - if it wasn’t obvious before - was made clear by Kinross taking a substantial stake. An important exercise in learning investing in this space is how to read the signs that point to future success. John touches on this in our interview when he discusses how slow the market can be to catch onto world-class results being published.
Personally, I practice this by going back through past successful investor M&A deals and understanding the “warning signs” that occur along the way. This Kinross deal - the first investment ever by Kinross in Argentina - is one of those signs. So, too, are the consistent flow of world-class drill results, and the excruciatingly obvious immediate potential for continuing growth.
This 20,000 meter program - strange as this may sound for a company the size of Abra already - has the potential to transform Diablillos and elevate it to true tier 1 status. There are multiple bullets to fire in this regard - JAC, Oculto, and especially the porphyry. As John says capably in our interview, Abra’s valuation as it stands moderately captures the value of the existing resource, and therefore ascribes zero value to potential ongoing discovery. Considering the high degree of likelihood for success, this is one of those diverging risk:reward imbalances I like to talk about so much. And just imagine if their porphyry exploration comes good. Katy bar the door.
John made a point prior to our going live that he also wanted to highlight Arengtina’s recently-and-rapidly improving reputation as an investment jurisdiction. President Milei is certainly no stranger to controversy, but he has unquestionably made Argentina a much friendlier place for foreign capital. Which is music to the ears of mining companies. This, too, is one of those ingredients that builds a recipe for a successful take out.
So there you have it. AbraSilver. Some corners of this sector you need to watch your investment like a hawk. Not so with Abra. It’s too well-endowed, too well-developed, with too much potential and with too many signs pointing to further success for this to have any serious downside, barring uncontrollable macro events or disasters. At this point, I get the sense you can just sit back, kick your legs up, and let Abra run its course. And end up with some healthy M&A premium at the end of it all.
Part 3: The Written Summary
Note: Time stamps are links to that section of the interview.
01:00 Company Intro
Diablillos project in Salta province, Argentina
258m oz AgEq
Doubled the resource since 2019
60/40 split between Ag and Au
Released a PFS in March
Showed great value even at conservative commodity prices
Significant torque as spot price rises
In the middle of a 20,000 meter drill campaign with lots of positive results so far
Expect a construction decision within a couple years.
03:25 Drill campaign discussion
Most of the 20,000m is step-out drilling
Just beyond the man Occulto deposit
One focus is the Tesoro zone
Main target is the JAC deposit
Current resource is 3gpt AuEq, Oxides, close to surface. Lots of advantages.
John transitions to discuss Kinross deal. Two major corps (one being an Argentinian power company) put in $10M each. Kinross’ first step into Argentina
They are discovering higher grades than expected
They will find the edges at some point but aren’t there yet.
Expect drill results every 3-4 weeks.
Will continue drilling into Q1 2025
About a dozen holes in the lab currently
Expect a bankable feasibility study next year
10:45 Drilling Priorities (Is there a plan to convert more M+I to P+P?)
50 meter step out holes
Upgrading current M+I not the top priority (maybe later on)
Continue to expand in all directions
Top priority is to grow the resource
Can infill later to get it into a resource
12:15 Why is the strip ratio so high (6.4:1)
They increased cut-off grade from 30 gpt to 45 gpt AgEq
This converted quite a bit of ore into waste rock – some 20-40 million tonnes of 0.2 – 0.4 gpt Au.
The plan is not to simply never process it, though.
A heap leach pad would be built to cheaply and efficiently recover the ore from the waste rock
The entire resource currently is 45 million tonnes, so this would nearly double the tonnage and would dramatically reduce the current strip ratio (albeit much lower grade).
There is 200,000-300,000 oz of recoverable gold
Incorporating that drops the strip ratio to 3:1
They’ve done additional met test work to confirm they can recover from the low grade material
The heap leach gives Abra the optionality to go it alone cheaply rather than rely on waiting for a larger company to fund the 9000 tpd plant and its $400m initial capital costs.
The fullscale plant would be producing 14 million oz of Ag/year.
16:00 How does Heap Leach/cheap start-up optionality help with negotiations?
Absolutely does. It’s been proven time and time again that it helps.
Being a junior with a world-class (and expensive) project can be a huge challenge.
Just no feasible path forward.
Easy to be taken advantage of.
Abra is not at all in that position.
Various parties have expressed interest.
Lots of options on the table.
Will make it a very competitive process.
18:00 The porphyry – how did you decide to start exploring for it now.
Various porphyries on the property. One right below the current pit.
The one they are planning to explore is separate and to the north.
There have been some extremely impressive intercepts in the sulphides
The porphyry complex underneath pit will be mined for sure, but not till after the 15 year mine plan
They don’t want to chase deeper porphyries – too expensive.
Priorities remain the low-hanging fruit (near-surface oxide mineralisation)
About 4km to the NE there is an outcropping of porphyry mineralisation.
Only a couple of holes drilled on it back in the 90s.
Currently doing detailed geophysics – results back soon.
The porphyry to the NE looks like there’s a target about 500m down.
If the grades continue like what they’ve found it could turn into an entirely separate project.
As a sulphide would require an entirely processing flowsheet.
Could continue to advance that while their current project moves into production.
Could be extremely beneficial for them down the road.
They have the funds to explore now, so now is the time.
Drill a handful of deeper holes (5x700m) to start out.
They’ve worked hard to manage their cash efficiently, but now is the time to explore for it.
Helps defeat the Lassonde Curve
23:00 Kinross Deal – Regional Partnership. What is it and why?
Any project Abra acquires in Argentina, Kinross has a right to acquire a 50% stake in it.
Kinross benefits from Abra’s presence in Argentina, and Kinross provides obvious supports for smaller companies. 50% funding, technical expertise, etc.
Their standards are high – they have one of the best projects in Argentina and don’t want to distract from it.
26:00 The Reverse Split. How do you navigate one without destroying value?
Timing is critical.
Wanted to do one for years.
Even when they formed this company out of a merger it had 300 million chares.
Thought the Kinross news was the right news to do it off the back of.
Typically also you see new shares issued immediately after a rollback. Market expects it so people hold off buying.
Being financed fully reduces this pressure.
No financing for institutions to take advantage of – have to go to the market.
Price of silver was also happy timing.
The goal is to avoid spooking the market.
Work from a position of strength.
30:30 Looking back on the success of Abra – what were the signs from the start this could be a special project?
People don’t always properly value exploration upside. You can release world-class results and sometimes it is slow to be understood.
Even today, trading at 0.25 NPV – that ascribes zero value to the huge remaining exploration upside. All their zones remain wide open.
There is a balance – you want to drill aggressively, but also need to be cognizant of managing the treasury. They treat the cash like it was their own.
33:30 Final thoughts on Argentinian Jurisdictional Strength
President Milei has made Argentina extremely investor friendly.
Suddenly Argentina has a very small tax burden.
You are seeing majors start to enter Argentina
Conclusion
Lots more on the docket to come here, including my Beaver Creek trip report. Hope you enjoyed this article and - please - feel free to provide feedback. I am always eager to improve.
As always, thank you for reading.
-Matthew from JRI
