Eloro Resources (ELO.T) put out a press release outlining its updated 43-101 Compliant Mineral Resource Estimate for its Iska Iska project in Bolivia. For the first time it was able to report “indicated” resources as well as significantly increased “inferred” resources.
ELO shares traded down.
I spoke to CEO Tom Larsen who was, as you might expect, disappointed with the market’s reception of what, objectively, is excellent news. Now part of the share price story is secular, the war in Iran, the price of silver falling; but part of it is the very nature of the 43-101 Mineral Resource process.
“So the actual Estimate is done by a third party,” said Larsen. “The independent mining consultant firm who have been hired for the inaugural 2023 MRE and the recent upgrade study is Micon International, an Independent Mining Consulting firm. They have to be conservative. Hundred meter by hundred meter drill spacings will always be classified as “inferred”. Fifty by fifty meter spacings are required for indicated.”
What Micon cannot comment on nor can Larsen, is the fact that the mineralization at Iska Iska has been remarkably consistent. Eloro has drilled to date 146 drill holes totalling 119,930 metres, every one of which has hit mineralization. It has developed a robust geological model of the drilled sections of the overall Iska Iska ground and is able to accurately discern well defined tin, lead/zinc and primary silver domains.
“The inferred silver resource in the upper part of the system in the 2023 MRE report reported 24 gram silver within 132 million tonnes,” said Larsen. “With our infill drilling in the last couple years we have moved to 85 million tons of indicated 40 gpt ton silver. The silver grade is up 66%.”
“We will be drilling up to 40,000 meters in the upcoming months,” said Larsen. “Primarily focused on the silver primary domain. We know that as we infill drill the grade goes up. By doing a focused infill drilling program we are confident we can take the indicated silver tons to 140 million at 40 grams per ton.”
40 grams is a tiny bit less than an ounce and a half. Here’s another thing which the 43-101 rules prohibit Eloro from including in the press release on the revised MRE: the value of 140 million tons of ounce and a half silver. Simple math with today’s silver price gives a gross value of US$ 10.5 billion. Ballpark cost of mining and processing at $20-25/ton leaves a profit of $50/ton or 7 billion US dollars. And that is just for the silver.
As I write, ELO’s market cap is 229 million Canadian or 167 million US. Little wonder that Larsen is disappointed with the market’s reaction to the revised MRE.
“We are going to focus on upgrading the silver primary,” said Larsen. “Iska Iska is the third largest in situ silver deposit in the world with in excess of 360 million ounces. We can increase the grade and the value of that deposit with minimal, but well targeted, drilling.”
At the same time Eloro will also be drilling in the tin domain to the West. “Right now, we have an inferred 31 million tons of tin,” said Larsen. “While our primary target is the silver, we will also drill the newly discovered tin corridor to the west of Santa Barbara to enhance the tin inferred resource as a potential standalone open pit mining operation. We would like to have drilled enough to include the tin resource as a sidebar in the upcoming Preliminary Economic Assessment.”
Eloro has faced obstacles in its drilling program in the last couple of years. Drill rigs not available and the diesel to run them being in short supply. However, the new Bolivian government has improved the diesel situation and ELO has retained a new drilling contractor. “We’ll have rigs running in early May,” said Larsen. “We plan on having three or four drills running as we progress.”
Polymetallic deposits are complicated and one as large as Iska Iska is difficult to explain to retail investors. Institutional investors, on the other hand, can digest and analyze the gist of the MRE. Here’s what Red Cloud had to say,
“We view this as a positive update that has resulted in a 54% increase in total mineralized tonnage. The higher confidence indicated resource exhibits a 65% higher grade compared to the high-grade portion of the 2023 MRE. As we had anticipated, the high-grade indicated portion (40 g/t Ag and 75.2 g/t AgEq) lies in the middle of the resource pit shell. We believe the high-grade core should dispel concerns about the potential quality of the deposit while its size, geometry and continuity remain key defining attributes that place Iska Iska among the premier Ag dominant development projects globally.”
As investment bankers are wont to do, Red Cloud compared Eloro’s $0.18 US per in situ ounce valuation with ten peers which had an average in situ silver ounce valuation of $1.93 US. Unsurprisingly, Red Cloud is looking for a $5.50 target price.
Along with capital markets people, Eloro is also attracting the attention of large balance sheet companies. “We have four NDAs in place,” said Larsen while declining to actually name the entities involved.
Taking a strategic stake in Eloro or buying some or all of the Iska Iska deposit or joint venturing are all potential outcomes for ELO’s suitors. At the moment there has to be a serious temptation to put in a stink bid at, say, $4.00 (less than $500 million) Canadian to get an asset the silver value of which, net, is on the order of 7 billion dollars. Such a bid would kick off a competition and it is a good bet the final offer would leave Red Cloud’s $5.50 target in the dust.
The next major event for Eloro will be its PEA expected Q4 2026. Chances are pretty good that PEA will include a further revised MRE based on the drilling at Iska Iska starting in the next couple of weeks. In the PEA Eloro will be allowed to attach some actual economics to the geology. Mining and processing costs, recoveries and sensitivity tables reflecting the effect of the price of silver and the other metals. Plus, if the drilling goes well, the tin domain’s value will be reflected as well.