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SVH Tracker - January 17, 2018: Recommendation Strategy for Arizona Silver Exploration Corp
 Arizona Silver Exploration Inc was recommended as a Good Relative Spec Value Buy at $0.61 on May 18, 2017 based on the expectation that drilling would confirm the Ramsey Hypothesis developed by CEO Greg Hahn on the basis of a geophysical survey conducted over the gravel covered area to the northwest of the former high grade Ramsey silver mine in southwestern Arizona. The Ramsey Hypothesis was that the narrow Ramsey vein had been down dropped and fault off-set to the northwest. The goal was not to find the missing extension of a narrow high grade vein, but the halo of lower grade mineralization surrounding it. The tonnage footprint of the open-pittable target was about 60 million tonnes. If the silver grade managed to average 125 g/t, a 10,000 tpd open-pit mine with USD $150 million CapEx and $26/t OpEx would have had an after-tax NPV of just under CAD $600 million at the $16.81/oz silver price at the time. Based on only 33 million fully diluted and a 100% net interest that represented a future target of $18.12 per share, though at the target drilling stage where a 1.0%-2.5% uncertainty prevails for a plausible outcome the fair stock price ranged $0.19-$0.47 per share. But Arizona Silver was not your usual toiling geologist junior which disappears into the bush with investors' money and several months later returns with a press release filled with gibberish about "encouraging" results and an assay table with single digit widths and grades that start with a zero after the decimal point. Arizona Silver had Mike Stark as chairman, an individual who in his real life puts out fires but when promoting sets stocks on fire. He was doing such a good job with Arizona Silver that the stock hit $1.25, well beyond even S-Curve territory ahead of results.
When the results came on May 30, 2017 they demolished the Ramsey Hypothesis and the downside market reaction was brutal. From a quick double Spec Value Hunters ended up with more than a 50% loss from the recommended price, but I kept the recommendation alive on June 14, 2017 because of the Deep Western IP anomaly which work on the Ramsey Hypothesis had accidentally revealed when the crew extended the line westwards farther than instructed. Such an anomaly can be interpreted as evidence of a major sulphide system which in Arizona can be related to enriched copper deposits such as San Manuel-Kalamazoo. Because nobody based on sparse outcrop in this gravel covered area would ever have done any geophysical surveys, the IP anomaly was an unexpected surprise to which the Ramsey Vein might have been peripherally related. It intrigued me enough to keep hopes up on September 12, 2017 as drilling resumed with the warning that this time the market would adopt a wait and see attitude. What they saw on December 5, 2017 was a bust of the Western Deep IP anomaly because a hole into it did not contain any fresh sulphides to explain the anomaly.
Arizona Silver announced on January 16, 2017 that it would resume drilling in February with a 1,000 m program of 6 holes east of the Ramsey vein where drilling last fall had delivered evidence that the Ramsey vein flattened its eastward dip though without the high grade core. Another 9-10 holes are planned for Q2 of 2018 once the non-patented claims are permitted. I walked this area to the east of the Ramsey Mine with management during a May 2017 site visit and there is potential for a bulk tonnage deposit to be present. But the grades are coming in below 60 g/t silver and not the 90-125 g/t (3-4 oz) I was looking for in the Ramsey Hypothesis. This is because the narrow high grade vein core of the structure is not present as it is in the old workings. There is potential for the grades to improve to the east, and I am sympathetic to that possible outcome.
After Arizona Silver announced its plans I checked the web site in search of some graphical context but was disappointed to find that the corporate presentation was still the one from September 2017 which describes the Deep Western target. That is unacceptable. Furthermore, I have seen a lot of web sites ranging from outstanding to one from an ASX-listed company which had been hijacked by jihadis whose malware my anti-virus program fortunately knew how to neutralize. Arizona Silver's web site doesn't host any malware but it is an awful mess that prevents me from understanding the past and current status of the story. Because technically competent exploration teams pay the extra bucks to make sure their audiences can efficiently and clearly understand their story within the limits imposed by the "make sure nobody understands what you are trying to accomplish" 43-101 police, it is hard to swallow the excuse that this is the best the company can for now afford because "all the money is going into the ground". There is also the problem that the company's news releases omit results related information I deem critical to figuring out what the results mean, and that many graphics lack scales or legends. They even email press releases as word documents. If the company need spend only 2 minutes creating a pdf to save a thousand investors wasting two minutes each waiting for Microsoft Office to start, assuming they have it installed, why does it not do so? I have discussed these issues with management but do not see much progress to make my life easier.
With these annoyances in mind, given that the Ramsey East target is so far showing a silver grade that needs a higher silver price to be interesting, and the company does not yet have a Plan B project in case the grade completely fizzles out in the next round of drilling, I have decided to close out Arizona Silver Corp at $0.20 as a Spec Value Hunter recommendation to clock a 67% loss. At the same time there are the facts that Arizona Silver has only 30,044,016 shares fully diluted, about $700,000 working capital, a management team that expects its payout to be delivered by fundamental success rather than a pump and dump, a drum banger on board who can really rouse the crowd and could bring the house down if only his boss would give him a discovery hole with a plausible geological context, and a project that still has room to surprise us with a discovery. These are the criteria for a classic bottom-fish which is why I am dropping Arizona Silver as an SVH pick and recommending it as a bottom-fish accumulation target in the $0.20-$0.29 range.
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