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Junior Miner Reborn in Land of the Incas

Jeff Nielson Jeff Nielson, Stockhouse
0 Comments| December 6, 2017

Click to enlargeWhat is the best nation in the world as a base of operations for mining? Mining investors (and companies) may debate which name belongs on the very top of that list. However, one nation that should rank near the top of everyone’s list is Peru.

The numbers speak for themselves.

  • Silver: Peru is the world’s #2 producer
  • Zinc: Peru is the world’s #2 producer
  • Copper: Peru is the world’s #3 producer
  • Lead: Peru is the world’s #4 producer
  • Gold: Peru is the world’s #6 producer

In short, with almost every major metal Peru is one of the world’s major producers. This important fact was not lost on the (new) management team of Nubian Resources Ltd (TSX: V.NBR, Forum).

Nubian Resources is not a new mining company. Like many junior miners, the Company was struggling to advance its operations in the very challenging conditions in the mining sector over the past six years. During that time, its operations were based in the U.S. (Nevada and New Mexico), as well as Zambia.

The decision was made to clean house and get a fresh start. The previous management team was replaced. The Company was recapitalized. And NBR’s new management team chose Peru as the focal point of mining operations.

Of course, setting up shop in a great mining jurisdiction doesn’t count for much unless a mining company also has a prime project, to take advantage of the excellent mining opportunities in that nation. For Nubian Resources, its flagship property in Peru is the Esquilache Polymetallic Project.

In a conference call with Stockhouse Editorial, new CEO Martin Walter stressed the word “polymetallic”. This leads back to the nature of the Peruvian mining industry. How can one nation be an industry leader in the production of so many different metals? Polymetallic deposits.

In the case of Esquilache, the three, principal metals present in significant quantities are silver, zinc, and lead. Parts of this robust land package (1,600 hectares) also contain copper and gold mineralization. As with much of Peru’s mineralization, this is a high grade Project. Considerable historical exploration has been done on the property in the past.

(click to enlarge)

[Note: Historical results are not NI 43-101 compliant]

Not only has previous work uncovered some huge numbers with respect to silver grades, some of these intercepts represent broad bands of mineralization: 5.65 meters of 304 g/t Ag; 8.1 meters of 292 g/t Ag.

Typically, high-grade silver/zinc/lead deposits occur in what is classified as “narrow vein” geology. However, “narrow” is a relative term. Some of this mineralization does occur in thicker layers of mineralization – while still concentrated in high grades. This is how/why Peru can be a world leader in the production of so many metals.

Previous work on Esquilache has not been limited to drilling alone. There has also been considerable metallurgical testing. A previous operator of the Project determined that this mineralization is amenable to three saleable concentrates: silver-lead, zinc-silver, and copper-gold. That testing was focused on the Sepulveda and Elvira vein systems.

Three separate Zones of mineralization have already been identified: Sepulveda, Creston, and Mamacocha. In the northern portion of the property, the Creston and Sepulveda veins run roughly parallel over a portion of Esquilache.

Click to enlarge

This is also near-surface mineralization. Management believes there is considerable potential for an open pit deposit, situated in relatively friendly topography.

At an even earlier stage, underground mining took place on the property. From 1951 – 1961; former operator Hochschild Mining mined roughly one million tonnes of ore, with robust grades that averaged 4.8% zinc, 3.2% lead, 0.3% copper, and 3.4 ounces/tonne of silver.

The polymetallic nature of this mineralization also represents greater certainty and security for investors. Most mining investors are aware that the zinc market is currently one of the strongest metals markets. For the last two years, zinc prices have been in a rising trend. At roughly $1.50/lb (USD), zinc prices have only once exceeded this level – in the huge commodities spiral that ended in 2008.

Click to enlarge

More recently, the price of lead has moved back above $1/lb, representing bull market conditions for this metal as well. Lead prices have also been in a two-year uptrend.

Click to enlarge
However, the dominant mineralization at Esquilache is silver. This is where the real opportunity lies for investors. The silver market is not presently anywhere near bull-market conditions. Indeed, except for a two-year spurt between 2009 and 2011, the silver market has been in extremely depressed conditions for well over three decades.

Click to enlarge

[commodity charts produced courtesy of]

This represents a historic trough for a metals market, never before seen with any other metal. The only other metal that has seen even roughly parallel conditions is the gold market. Why?

As precious metals, silver and gold have been conserved throughout history. This meant that we had accumulated large stockpiles of silver and gold. The stockpiles of silver are gone. Noted silver authority Ted Butler has famously provided this shocking analysis of the silver market.

From 1940 thru 2006, close to 9 billion ounces of silver were taken from existing inventories to supplement mine production, depleting those inventories to one billion ounces, a reduction of 90%.

This needs explanation for readers not familiar with commodity markets. The silver market has been in a continuous supply deficit for at least thirty years, and (as Butler points out) has been in deficit for most of the last 77 years.

During that time, nine billion ounces of silver have literally been consumed from global stockpiles. How can a metal be “consumed”? It’s actually quite simple.

As humanity’s most versatile metal, silver has been utilized in countless billions of consumer products. Because silver has such potent properties, it is often used in small quantities. At the depressed prices for silver over the past 77 years, it has been uneconomical to recycle most of this silver.

Consequently, most of the silver mined over the past 4,000+ years is now strewn across the world’s landfills. Many analysts now believe there is more (above ground) gold in the world today than silver, yet the silver/gold price ratio is currently at an ultra-extreme level of roughly 75:1.

The normal silver/gold price ratio is 15:1. At that level, the silver mining industry is fully viable and the silver market would move back to a surplus – eventually. Because it can take as long as 10 years to take a mining project from discovery to production, it will take many years of massively higher prices for silver to make this sector sustainable again.

How massive? At a 15:1 ratio, the price of silver would be over $80/oz today. The alternative? A global inventory default in the silver market. Should that occur (after a 77-year bear market), we would see a short-squeeze and commodity spike unlike anything ever seen before in the history of commodity markets.

With the potential of the silver market so explosive, management is wasting no time in sending in the drills. A two-phased drilling program has already been mapped out. Phase I is to be comprised of 5,000 meters of drilling. This is to be divided between the Mamacocha Zone (3,000 meters) and the Sepulveda Zone (2,000 meters).

Click to enlarge

Mamacocha is the other mineralized zone that has already been identified at Esquilache. This Zone is situated in the southern portion of the property, and is comprised of a series of mineralized veins. Mamacocha has also seen considerable historical development. This was the site of previous mining operations. It is also close to a cluster of highly prospective exploration targets (Virgin de Chapi).

Click to enlarge

Phase II of NBR’s exploration program will also include a 5,000 meter drill program. In addition, management believes that the Project will be ready to move to a maiden (NI 43-101 compliant) resource estimate at that time. The Company also plans on conducting engineering work, setting the stage for a future PEA (Preliminary Economic Assessment).

When it comes to advancing silver projects, few people have a pedigree equal to Martin Walter. Among his credits, from 2001 – 2009 Walter served in senior operational positionsat Aquiline Resources Inc, including Executive Vice President and Vice President of Exploration. Aquiline was advancing the large Navidad Silver-Lead deposit, and in 2009 that company was sold to Pan American Silver Corp at a price of roughly $ 650million (USD). No other silver project has been sold for more in recent years.

The CEO explained what caught his eye about Esquilache as Nubian’s new head of operations:

Success in Peru starts with a great local team. It is all about the quality of your project and your management. Our extensive experience at the local level has allowed NBR to assemble a focused team of the best in-country geologists and engineers. We look forward to advancing this great project and generating value for our shareholders.

It’s important to note that Nubian Resources is not a one-project Company. NBR is still holding its legacy mining assets in Nevada and New Mexico. The Company may farm out these properties to third parties if suitable buyers are identified.
Silver, zinc, and lead: this is what the Esquilache Polymetallic Project represents. Despite all the previous work on this property (in a world-class jurisdiction), Nubian Resources is presently sitting with a tiny market cap of roughly $5 million.
For investors, the equation here is simple. Buy shares today to take advantage of the bull market conditions in the zinc and lead markets. Hold those shares tomorrow, in anticipation of the epic bull market that is coming for silver.
Appendix:  mapping of Esquillache exploration

(click to enlarge images)

FULL DISCLOSURE: Nubian Resources Inc is a paid client of Stockhouse Publishing.

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