Bottom-Fish Comment - July 18, 2012: Bottom-Fish Strategy for Dolly Varden Silver Corp
Dolly Varden Silver Corp was recommended as a medium priority bottom-fish buy in the $0.10-$0.19 range on July 13, 2012 based on its dual strategy of bringing the historic high grade silver "veins" back to life on the Dolly Varden property in northwestern British Columbia, and demonstrating that the late Fred Christensen's "silver lady" is in fact peripheral to a monster gold-silver rich VMS system that will rival Eskay Creek when it is found. The visualizer behind this Big Anomaly Play is Paul McGuigan who has spent a lot of time in the so-called Stikine Arch which became an area play in 1989 when hole 109 gave Murray Pezim his last hurrah. While working for Fred Christensen he had developed the theory that the volcanic belt from Eskay Creek to Dolly Varden was prospective for VMS deposits, but when Eskay Creek became a discovery play Christensen's focus shifted to an over-staking strategy rather than making a similar discovery in the Dolly Varden area. Most of the work conducted on the property since 1980 when Christensen acquired control was focused on developing the five silver zones left after mining shut down in 1959. The historic resource totals 467,519 tonnes proven and probable at 12.2 opt and 886,826 tonnes possible at 9.9 opt for a total inventory of 14.5 million silver ounces. After Christensen died in 2010 the estate proceeded to divest the original Dolly Varden company (it survives as DV Resources Ltd) of its assets, selling the Dolly Varden property in March 2011 for $2.5 million to a private company cobbled together by a group of Greek investors headed by Theo Sanidas to whom McGuigan had consulted about Dolly Varden's potential. Although the Sanidas group was able to raise $4.5 million at $0.05-$0.10, it lacked the clout to move the project forward, so it decided to bring on board technical talent in the form of Ron Nichols, now the CEO, and some Wall Street muscle in the form of John King Burns who served time as a resource specialist with Drexel Burnham and Barclays, and who spends his free time stopping bad cooks from poisoning his beloved Cato Institute.
Nichols and Burns teamed up with McGuigan to take charge of the private company, raising additional funds from their networks which include Eskay Creek alumni who unlike the earlier shareholders from the periphery understand McGuigan's Big Anomaly concept of a nearly upside-down ice cream cone. A plan was in place during 2011 to raise $10 million plus as part of a public listing but some title hassles derailed the financing, forcing Dolly Varden to slink onto the TSXV on February 14, 2012 after merging with a recently created CNSX junior called Twin Glacier. The resulting company has 80,265,000 shares issued and 97,119,400 fully diluted, with most of the paper coming from the Dolly Varden side. That has turned into a bit of a problem, because after spending $4.5 million in 2011 on compilation work, drilling of the historic silver zones, and confirming that the Wolf zone is likely related to a small satellite VMS system, Dolly Varden has only $1.4 million working capital, well short of the $12 million it wants to spend on its dual strategy. The stock ended up at bottom-fish prices thanks to the resource sector bear market and persistent selling from the periphery. Dolly Varden's Plan B is to raise about $5 million mainly for a 6,000 m drill program that will further delineate the silver zones, hopefully converting the historic resource into an expanded 43-101 compliant resource that could be developed by underground mining. However, part of the money would be earmarked for an alteration study to pinpoint the best drill holes for the Redpoint alteration zone which McGuigan thinks is the unmineralized feeder system of a giant volcanic massive sulphide mound that has been titled southeastwards to such an extent that the base and precious metals rich zone is now below the feeder system, but northwest of the silver zones which occur within an exhalative style unit now interpreted as the apron typically peripheral to a VMS pile.
If this model is correct there is plenty of room for the discovery of additional silver ounces, but the big score would be the gold and silver rich zone at the center and top of this high sulphidation volcanic pile, which, because it is overturned, would be deeper than the silver rich zones. The goal is to find another Eskay Creek deposit which had an enriched gold and silver grade of 44.4 g/t gold and 2,087.7 g/t silver that yielded 3.6 million ounces gold and 168 million ounces silver from a mere 2.5 million tonnes. The scale of the inferred feeder system at Dolly Varden as defined by the Redpoint alteration zone dwarfs that of Eskay Creek by an order of magnitude. Dolly Varden is ranked only medium priority because without money it cannot test this Big Anomaly's potential for a billion dollar discovery play; work can be done until late October, and because a camp is already in place, the junior could mobilize a major program even in late August. If Dolly Varden is not financed by mid August, bottom-fishers will have to wait until 2013. Dolly Varden is not in the notorious snowbelt of this region and is accessible during the winter, so if drilling this summer delivers a discovery, work could conceivably continue throughout the winter, even if it is only on the silver zones whose resource expansion potential would be enhanced by confirmation of the VMS model.