THE CRITICAL INVESTOR

After a failed hostile take over attempt of Dolly Varden Silver (DV.V)(DOLLF.US) in in the past, Hecla Mining (HL.US) now resorts to maintaining their pro-rata equity interest in the company these days, as it exercised its anti-dilution right regarding the Homestake Ridge transaction. This time they are going to invest C$5.3M at a share price of C$0.59 in Dolly Varden, maintaining their equity interest at 10.25%, which is nice to have additional cash with lots of drilling planned, and these shares would be issued in addition to the ones being part of the Homestake Ridge transaction. This transaction itself has been approved by shareholders on February 22, 2022, and was closed on February 25, 2022. The vendor, Fury Gold Mines (FURY.TO), has CEO Tim Clark and VP Exploration Michael Henrichsen joining the board of Dolly Varden.

Next to the planning of upcoming drill programs, it took a while before Dolly Varden Silver started releasing results of their 2021 drill program at their Dolly Varden Project, but after announcing two batches of assays in December 2021 and January 2022, all results are out there to be studied. In the mean time, the stockmarkets are trying to maneuver two relatively unexpected events, as there are the hawkish tightening by the Fed, implying more interest rate hikes than anticipated, and most importantly Russia conducting a full scale invasion in Ukraine, in an attempt to remove current leadership as it doesn’t fancy its NATO and EU aspirations, and democratic developments.

Let’s hope this doesn’t escalate into a situation involving NATO members like Poland, Romania, Bulgaria, Estonia, Latvia or Lithuania, and will develop into something of a stable state after an actual regime change, which seems inevitable. Taking Russia out of the SWIFT payment system and halting its delivery of oil and gas seem to be the ultimate sanctions the western world has to its disposal, let’s see if this will be used, and in that case will have the desired effects. Dolly Varden Silver isn’t fazed by this turmoil, and is looking to develop the full potential of the combined Dolly Varden-Homestake Ridge projects, which is called the Kitsault Valley project now after the recent closing of the transaction. As gold is trading around US$1900/oz Au again, the Homestake Ridge acquisition seems to be well timed for sure.

All pictures are company material, unless stated otherwise.

All currencies are in US Dollars, unless stated otherwise.

Please note: the views, opinions, estimates, forecasts or predictions regarding Dolly Varden Silver's NPV and resource potential are those of the author alone and do not represent views, opinions, estimates, forecasts or predictions of Dolly Varden Silver or Dolly Varden Silver's management. Dolly Varden Silver has not in any way endorsed the views, opinions, estimates, forecasts or predictions provided by the author.

Drill results

Dolly Varden Silver announced the second and largest batch of results on January 31, 2022, involving the assays of 21 holes of the 2021 drill program at the Torbrit Silver deposit at the Dolly Varden project. A total of 31 drill holes were completed, for 10,506m, of which the most recently reported 21 holes (6,838m) were designed to expand and infill Torbrit, and the balance of 10 holes (announced on December 20,2021) tested 5 regional exploration targets.

This completed program was the start of a two-year strategy to expand and upgrade Torbrit and several satellite zones like the Wolf Vein and the Western Gold-Copper Belt target, in order to substantially increase silver ounces at the Dolly Varden project. This strategy was designed before the company acquired the Homestake Ridge project from Fury Gold Mines for C$50M.

This strategy for the Dolly Varden project will continue, but after the closing of the Homestake acquisition, the area between Dolly Varden and Homestake will become a focus for exploration as well, and new drill targets will be an integral part of exploration from then onwards. As a reminder, the 2019 NI43-101 compliant resource estimate for Dolly Varden stands at 32.9Moz @ 299.8g/t Ag Indicated and 11.4Moz at 277g/t Ag Inferred. Homestake Ridge is an advanced stage precious metal project, and its 2022 NI43-101 compliant resources include 1.8Moz gold with 1.8Moz silver Indicated and 17.8Moz gold with 17.8Moz silver Inferred. Not included are the base metal credits from copper, lead and zinc that both deposit areas have. While more of the resource is contained in the Inferred category compared to the Dolly Varden project, Homestake is more advanced as a previous 2020 Preliminary Economic Assessment (PEA) was undertaken by the previous owners.

As a reminder, the now historic (because of the selling of the project to another issuer, in this case Dolly Varden) 2020 PEA had an after-tax NPV5 of US$173M at conservative metal prices, which equates to C$219M. At higher metal prices (gold US$1800/oz and silver US$23/oz) the NPV5 is estimated by me to exceed C$350M. After adding the Dolly Varden resources, I estimate an after-tax NPV5 of US$300M is within reach (= C$380M) at US$1620/oz gold and US$14.40/oz silver. At current precious metals prices this could even increase to an estimated C$580-650M. With regards to the pro forma market cap of about C$160M at a share price of 79c, there seems to be decent room for re-rating.

Share price; 3 year timeframe (Source: tmxmoney.com) 

For now, Dolly Varden has been trading in lockstep with the gold price the last few months, as over half of their resources are now in high grade gold. I believe this to be an excellent strategic switch, as the silver price appears to have disconnected from gold, and is harder to move by any fundamental (if there are any) or sentiment drivers. Gold on the other hand seems to be setting up for the next leg up, with multi-decade high inflation levels initiating the fear trade again for many investors, drawing lots of cash out of tech, stocks and crypto. Enough about gold for now, let’s go back to the drill results for the Dolly Varden project, handling silver.

To get something of an overview first, here are a schematic project map of the entire project including Homestake Ridge, and a 3D model for Torbrit and the Kitsol Vein:

The 3D model shows most of 2021 drilling:

Highlights of this program included:

• DV21-274: 12.28m true width averaging 354 g/t Ag at Kitsol
• DV21-275: 18.27m true width averaging 230 g/t Ag at Kitsol
• DV21-275: 0.70m drilled length averaging 1,220 g/t Ag at Torbrit North Zone
• DV21-277: 16.00m drilled length averaging 212 g/t Ag (incl. 4.70m of 507g/t Ag) at Torbrit
• DV21-278: 5.10m drilled length averaging 364 g/t Ag at Torbrit Main

As the average grade for Torbrit is about 290g/t Ag, these grades fit in nicely. It is visible in the 3D model, that the mineralized envelopes have complex geometries, and this is the reason several step-out holes hardly hit any silver, like holes 250, 251, 255, 257, 262, 263 and 279. But fortunately 12 out of the last 21 reported holes did hit over the cut-off grade of 150g/t Ag. Chief Geologist Rob Van Egmond was pleased with the results:

“Multiple holes intersecting over 4000 gram-meters of silver over wide intervals within the Kitsol epithermal vein is certainly encouraging, and the identification of wide intervals of syngenetic mineralization that connects the main Torbrit Deposit with the lesser drilled North Star Deposit to the west is also very significant.  The next phase of drilling to commence this spring will include targeting high-grade silver shoots within this wide horizon, as well as step-outs to the north and south at Kitsol.”

To give an idea about mineralized potential, as the Kitsol Vein is vertically orientated, an estimated 300m x 100m x 10m x 2.75t/m3 = 0.825Mt envelope at an estimated average grade of say 280g/t Ag would be a hypothetical 7.4Moz Ag, which would be a nice addition. As of now, about 4 to 5Moz has been calculated within the Kitsol Vein resource domain of the Torbrit NI43-101 resource according to Rob Van Egmond. So it might be the hypothetical case that a few million ounces of silver could be added at Torbrit, but this is just my guesstimate.

A 3 hole fan was drilled at the Kitsol Vein, not only to expand, infill and upgrade mineralization there, but also to test the extension of the adjacent Torbrit deposit at depth. This was successful with holes 274 and 275, and interestingly hole 275 also returned 2m @ 5.4g/t Au from 204m depth. According to Van Egmond this might even be an important indicator for a gold structure leading all the way up to the Homestake Ridge gold deposit, located about 6km to the north.

Drillholes 256 and 257 indicated open mineralization of Torbrit Main towards the North Star deposit, although only 256 hit economic mineralization, with 3m @ 262g/t Ag.

On December 20, 2021, drill results from 10 holes from the Wolf Vein and the Western Gold Belt Area were reported. The absolute highlight was hole 273, intersecting 1.22m @ 1,532g/t Ag within 17.5m @ 214g/t Ag. This hole is also significant as it tested the prospective Hazelton volcanic rock that underlies the sedimentary units of the Upper Hazelton for the Wolf Vein extension. Discovering that the strong potassic alteration associated with silver mineralization within the volcanogenic Torbrit Deposit continues beneath the sediment, suggests that the mineralizing system continues to the west of the 4.5 km long surface alteration anomaly. This opens up exploration potential of the entire bottom of the Kitsault valley north of Wolf towards the old property boundary and onto Homestake Ridge.

The location of hole 273 can be seen nicely on the following map below:

What is interesting to me is, that besides the large amounts of showings, there is also a large amount of historical drilling across the property. It made me wonder if the data of these historical holes was still available, and potentially useful for current targeting. Rob Van Egmond stated that a lot of the data of these historic holes has been incorporated into database and is used to guide the modelling but that there are gaps in information and some modern drilling and structural measurements are needed to confirm the geology and allow the data to be included in future resource estimates.

Holes 267, 268 and 269 tested the Red Point target, which is located within the southern end of the Western Gold Belt alteration zone. The geology of this wide zone is analogous to other copper-gold porphyry systems in the Golden Triangle, like KSM, Snowfield, Saddle and Red Chris. This Western Gold Belt starts near the Dolly Varden Mine and trends north for several kilometers, towards Homestake Ridge. Intrusive-related alteration is associated with zones of increased stockwork and multi-phased breccias with pyritic matrix. This complex style of alteration, mineralization and brecciation is also common at other higher grade deposits in the Golden Triangle, including Homestake Ridge. The results weren’t economic but provided useful vectoring information that will guide future drilling plans. It also proves that the system has gold in it over large intervals and strike lengths when taken into combination with similar style mineralization at Homestake, according to Rob Van Egmond.

Regarding Homestake Ridge, besides potential at depth, the South Reef target has lower grade open pit potential, but is also open at depth. Fury Gold Mines did already identified a southern target area called Kombi, and within this area a 1km trend of stream sediment gold samples was defined, very close to the southern limit of the Homestake property, and a 2km trend of gold-in-stream sediments, which coincides with the Betty Creek Formation that also hosts the Homestake Main and Silver deposits.

According to management, current exploration plans are outlining 10,000m of drilling at Torbrit, alone with closer spaced drilling within the current block model as well as step outs alone areas where the deposit is still open. Homestake Ridge will also see approximately 20,000m of drilling, targeted at upgrading the Inferred resources in areas where the current model shows the thickest and highest grades. Once higher grade ore shoots are defined the down plunge extention can then be tested for continuity to depth.

Homestake Silver has seen relatively little drilling and a focus at keeping the silver to gold ratio high will be to expand Homestake Silver. The exploration portion of the upcoming drilling will test several geophysical anomalies modelled along the 5.4km trend between South Reef and Wolf, reinforced by the findings of recent drilling, like the strong potassic alteration associated with silver mineralization which continues beneath the sediment overburden. Current budgets for this work are estimated in the range of C$15-20M and may extend late into the fall of 2022. The upcoming programs for Torbrit and Homestake will start around mid-May.

Conclusion

The recent C$5.3M capital injection of Hecla Mining certainly is a nice to have for Dolly Varden Silver, but also indicates ongoing interest from Hecla, showing they are likely not done yet. Notwithstanding this, Dolly Varden stays on course, and continues to build out and advance their portfolio of projects. As the transaction of the Homestake Ridge acquisition has been closed now, the company is planning exploration programs for the combined project called Kitsault Valley, which are about to commence in May. It is not easy (for me at least) to guesstimate the added value of the 2021 drill results at this time, but it will be very interesting to see if the 2022 programs can connect mineralized trends between the Homestake and Dolly Varden deposits, potentially growing the total of gold and silver ounces even further.

I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter at www.criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.

Disclaimer:

The author is not a registered investment advisor, and currently has a position in this stock, and in Meridian Mining. Dolly Varden and Meridian Mining are sponsoring companies. All facts are to be checked by the reader. For more information go to www.dollyvardensilver.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.

Dolly Varden district