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Market Commentary: Stockpools Q&A: Jim McDonald, CEO and President of Kootenay Silver Inc. ($KTN.V)

Written by Andrew Topf

Introducing Mr. Jim McDonald, President & CEO of Kootenay Silver Inc. ($KTN.V)

By Andrew Topf for Stockpools Inc., 27 July 2017


I am very pleased to be able to share with you an interview with President, CEO and Director Jim McDonald of Kootenay Silver Inc. (TSX.V: KTN). I was able to sit down and ask Jim a few questions about the company and the project. Read on to discover some exciting information on Kootenay Silver. Kootenay Silver Inc. is an exploration company actively engaged in the discovery and development of mineral projects in the Sierra Madre Region of Mexico and in British Columbia, Canada. Supported by one of the largest portfolios of silver assets in Mexico, Kootenay continues to provide its shareholders with significant leverage to silver prices. The Company remains focused on the expansion of its current silver resources, new discoveries and the near-term economic development of two of its priority silver projects located in prolific mining districts in Sonora, State and Chihuahua, State, Mexico, respectively.

AT: Jim, thanks for taking the time to do the interview with Stockpools.com. I took a look at your news stream and there’s a lot going on right now at Kootenay Silver. Before we get into the details I wondered if you could maybe just give me a sense of where you feel we’re at with the market right now and how you’re feeling about silver prices?

JM: Well, we’re obviously in a market bottom. We’ve had a strong pullback in the precious metals in the last eight months. And we’re hoping it is forming another bottom. The chart of the metals is looking like it’s getting ready to decide whether to break out or not, and I‘m very confident it will, if not now, maybe later. The timing of these things is always very difficult to say. But going back to Q1 2016 we view that as a very definite breakout and change in the chart of precious metals. We saw it as a signal as the end of the bear market and the beginning of a new bull market. There were a lot of people taking money off the table at that point. And a lot of people are now sitting with that money and have not yet re-entered, and are basically waiting to see if we’re going to have another downdraft in the metal price. That’s not unusual so I’m expecting that when it does break out decisively you’ll see a lot of money come back in and you won't see a move like you did in Q1 2016 because we were coming off a  very, very low low after a very long bear market. But it will be quite strong. So that’s where we see it going and I think we’ll see a breakout before the end of this year, and possibly this summer.

AT: Okay let’s talk about your team. You have quite an experienced group of people managing Kootenay Silver. Could you briefly describe your team and their mining expertise including your own success?

JM: We’ve got a really well rounded team of guys. Our technical strength on the ground is exploration discovery. Our guys are very good at finding, we use a combination of geologists, Dr. Tom Richards who is really well known, particularly in Western Canada with the Geological Survey for a number of years then went into the industry and started up his own junior company, during the crash of 1987. And so he’s bar none one of the top exploration and regional geologists I’ve ever come across and anybody will tell you that. He's quite key in training our younger guys and keeping quite a high standard in our team down there in Mexico on the ground. The next guy in line is Luis Moya and then Gustavo Gallego, those are our main three people down there. They both perform at a very high professional standard. Luis was actually the guy who physically discovered La Negra by taking the first samples there.

A lot of these guys are prospectors we use, we’ve trained a young man, Francisco Cordova, from a small town in the mountains in Sonora who is turning out to be a world class prospector and then we work quite closely in business association with the Kennedy family from Canada who are among the best prospectors in the entire industry and have a geological knowledge, depth and understanding that exceeds or equals most geologists that I know. On the management side in Mexico we have a very capable office manager in Maria Elena Rodgriguez who keeps everything running smoothly. Myself, I’m a geologist, I worked for a major company for about four and a half years and went right into the junior exploration side of the business and start-up companies. I had worked with some guys called the Leask brothers for about 10 years, we had some pretty decent success in Argentina. After that I went on to form a couple of different companies with different partners, one of them was National Gold and at the bottom of that last bear market gold deposits were being almost given away. We had a shell [company] and we decided to go for one these already known deposits and we ended up buying the Mulatos deposit from Placer Dome and Kennecott after a lengthy bidding process and some luck along the way to be the last ones standing. We purchased that deposit which had a feasibility on 2 million ounces already conducted and they had a resource of somewhere around 3.5 to 4 million loosely defined. We secured that project and had the title signed over to us for down payment on signing of $50,000 believe it or not. And the total purchase price was only $12.5 [million] but yet you couldn’t raise any money. Gold was $280 and went to $265 right after. That project needed north of $300 [gold], so we struggled along and we brought in a partner in Alamos Minerals, they brought more depth than we had at the time, they brought the mining experience of the heap leach pioneer Chester Miller and then John McCluskey who had built his career based on finance and promotions and has a real good network of finance people. And so we joined forces and about a year and a half later amalgamated companies, forming Alamos Gold and of course that turned into a very successful company. I left that board in 2012.

AT: Alamos Gold went up to a $2 billion dollar evaluation right?

JM: Yes that’s correct, at the height of that last market and today that stock has made another major acquisition with the Young Davidson Mine and I think they’re nearly 3 billion now I believe in market cap. So that was a great deal to be involved with. Then I ran a small silver-gold mine in Mexico - La Guitarra - for a couple years and then Ken Berry and I went on to form Kootenay Silver then later Northern Vertex. Ken Berry, he’s the chairman and he has great depth on the finance and promotion end, so we’ve raised I can't recall the number off the top of my head between the two junior companies here in this downturn, between Northern Vertex and Kootenay Silver, but a lot of money. Our board has got experience right from grassroots discovery to building to operating to the finance and is really well rounded for a junior.

AT: You’re primarily focused on Mexico. You've also got opportunities in B.C. Can you describe for us the two major projects you’ve got in Mexico right now including the resource estimates?

JM: Our original discovery at Promontorio is a very large diatreme system still open for expansion. It’s a big low grade system, polymetallic, there’s 40 million ounces of silver, half a million ounces of gold plus lead-zinc, so silver equivalent of about 92 million ounces in MI [measures and indicated] on that discovery. It's low grade, it needs higher prices, there’s a high grade core to it which is being analyzed by Pan American now. Then just a couple years ago we made the La Negra discovery which is on the same property, 7 km north and it’s a very exciting project because it's got the potential for an open pit low cost operation. The grade is really good for open pit running north of 100 grams per tonne silver and preliminary metallurgy we get looks very favourable for really good recoveries using a leach process, which means you could potentially make a dore bar right on site and that of course avoids lots of costs in capital and operating versus having to do flotation and concentrates. So the potential economics look good, the grade's great, and there are a number of other targets as well so growth potential. And just over a year now we did the deal with Pan American where it gives us interest carried all the way to production for 25%. That’s Promontorio, which includes Promontorio and La Negra, those two discoveries. La Negra doesn’t yet have a maiden resource on it but Pan American is working on one. We’ll probably see one, I’m not sure the timing but it’ll certainly be this year and could even be this summer. Then they’re going to be back drilling fairly soon, infill drilling and drilling at depth on La Negra and they’ve developed some other targets that they’ll be drilling some holes into as well.

AT: I noticed that La Cigarra is pretty close to two producing silver mines, so I’m wondering how significant that is in terms of the geology?

JM: La Cigarra has got tremendous upside, we really like that project. You know, location means a lot in mining exploration. You get into these good productive districts and you could pick any district in the world and they just seem to keep finding more and more reserves and more and more discoveries and this is one of those districts. The Parral Mining District is one of the premier silver mining districts in all of Mexico which makes it one of the premier silver mining districts in the world. And mining history goes back there 500 years. The area immediately to our south is the San Francisco del Oro and the Santa Barbara regions. And a number of deposits there produced over 800 million ounces of silver in the past. Grupo Mexico is still mining silver there today and they’re down to over 1000-metre depth in parts of the mine. Frisco Mining is mining the San Francisco del Oro part of the district. This trend of these mines is to the north/ northwest on the overall regional trend. The trend disappears into a valley fill going north and where it re-emerges it's on our project, La Cigarra, so we’re basically on that same trend. La Cigarra is a new discovery made by Northair [Silver] recently and it comes to surface. So you can start to imagine now the otential on La Cigarra. We’ve got numerous target areas already defined and there’s over 6 km of mineralized strike length in the premier structure and there are other structures that haven’t been looked at yet. There’s just lots of exploration discovery potential here and given what we know about the district to the south and how deep the ore bodies continue to we can see this project finding new deposits for many, many years to come. So as an asset we start growing the ounces here and then start doing economic studies and start to show where the economics lie and at some point this is a project that we believe will be highly coveted by one of the mining companies. They’ll see here’s a project that will give a great return. We can build a mine and in this district and we know we are going to keep replacing reserves for many many years ahead.

AT: In terms of exploration upside, I noticed you’ve got some news out already on drill results so what are your plans for La Cigarra this year? You have a drill program there right?

JM: Yes. We’ve got two phases of drilling laid out here. One will start later in the year and it’ll be focused on some infill and step out on the deposit. Infill to confirm our resource modelling work because we’ve been putting a lot of effort on relogging core and trying to develop a more detailed model than what exists because we see strong structural controls there and if we can actually model those controls and follow them there are two things that could happen. There could be a grade improvement and the other thing is that we’ll better understand how to continue drilling the deposit. Because it is open on both strike extents and open down dip it hasn’t even been closed off yet. The other part of the plan, which we’ve embarked on now, is to start drilling these peripheral targets and seeing what they’re all about. We’re in the Venadas Zone now, which is about 700m south of the deposit. And it is a strong part of the system. There's a lot of encouraging silver numbers, it's showing to surface and what we see visually in the drilling is we have good strong structure, we've got the right kind of
alteration, the right kind of rock, and so we've got to get assays in and look for where the grade is of course. So that’s just the beginning of that so once we put maybe 10 or 12 holes into that area then we’ll move into some of the other target areas. For example the south end of the deposit where one of the last holes in the edge of the deposit had 138 grams over 23 metres.

AT: Yes I read that, good results.

JM: Yes, there's just so many targets here to test. We’re doing a lot of detailed mapping to prioritize them all, understand them, understand how they need to be drilled. After we drill that southern area we’ll move up to the north end of the deposit in the La Borracha Zone and work on starting to close the deposit off up there. Then move to the east of the guts of the deposit into the area called Navidad where we have some very similar geochemistry to what we see on the deposit itself about 400m further east of the deposit. This could also happen in the reverse order depending on logistics and mapping results. We're also going to get into the RAM structure where we had good encouragement last year, some decent hits, in the first round of drilling.

AT: Maybe we can just talk about the joint venture with Pan American Silver on La Negra, they’ve got a drill program going on as well there. You mentioned with the JV they have to spend $16 million to get 75% interest in the project so just wondered what is happening there?

JM: So, the $16 million US, how it works is four years to spend in the ground $8 million US and we’re into the second year now. Then cash payments of $8 million US loaded to the back end. So in the last year there’s a $7 million US payment due. Once they do all of that they’ve earned 75% and from that point onward they supply all of the capital for exploration and development all the way to production. We don’t have to put up any of the money, however they get to recover our portion of that from 60% of our cash flow, but they take care of the financing. So that’s how that deal works.

AT: Are they doing any drilling right now there?

JM: They’re getting ready to drill, I don’t have a date from them yet, but they’re going to be back turning not too long from now. And they’re going to be doing some infill on La Negra, they’re going to do some deeper holes and they’ve got some other targets that they’re going to have a crack at as well.

AT: Given that you’re advancing both of these projects at the same time, what does your path to production look like? And when could we see the first silver poured in Mexico?

JM: Well, we’re a ways off from that because we haven’t gotten to prefeasibility yet, but if things were to be fast tracked at one of the projects you could see yourself with the feasibility in a couple years, and making a production decision and probably be 18 months out from that. So it's not that far off potentially here, we just need to get a bit of momentum going and then really, once you pull the trigger and go for it like for example La Cigarra if our new modelling work and drilling this year is quite positive and we can see that it's looking pretty strong we get into that PEA and if you’re getting good positive indications from your PEA then you can dive right into prefeasibility and that’s when things can get really accelerated. Or they can get really accelerated if you have a brand new exciting discovery, which is of course what we’re working on.

AT: I want to talk a little about cash. Your JV with Pan American Silver is a nice buffer as far as your exploration expenses. What’s your cash position right now and do you have enough in the kitty to keep exploration going without going to the market?

JM: We are good for some time here with our programs, we’ve got over $4.5 million currently. Some of that money is earmarked for the Silver Fox project which came from Antofagasta so it goes there, but we’re still in good shape for our programs running here, and the drilling we’re currently doing. Which is good because the market's not in the mood at the moment and prices are down, so before precious metal prices start turning around, we have a chance to make some drill discoveries, get some good numbers out and get some momentum going.

AT: Okay let’s talk about B.C. a bit more. So you mentioned the Silver Fox property and you have an arrangement with Antofagasta, so what’s happening there? You have a 3,000-metre drill program?

JM: Yes, a 3000-metre drill program for this year, it's an extension of the copper- silver mineral belt that comes out of Montana, and it’s the first discovery of this type of deposit in Canada, a prospecting discovery not a drill discovery, but it’s the first time this type of mineral system has been identified in the same belt of rocks on the Canadian side of the border. In Montana there are a number of well-known deposits, Rock Creek and Montanore being the largest, then there is Spar Lake which was mined by Asarco, and then more recently a small junior producer that was bought out by Hecla. And these deposits like Montanore and Rock Creek are big. Each one of those deposits exceed 200 million ounces of contained silver along with a huge credit to copper, and copper is of course what Antofagasta is interested in. So this is so-called elephant territory. With a bit of luck that’s the kind of thing we could find, that’s what we’re looking for: one of these monster silver deposits. So this is the first time the project has ever been drilled, there’s five different targets, it's very early stage here, but we’re testing that stratigraphy down dip from surface and looking for some more grade.

AT: You also recently acquired the Mark project and there’s also a JV with Antofagasta on that, can you tell us a little about that project? What’s the arrangement there? And the prospectivity on that property?

JM: The Mark prospect is the same kind of deal, it’s the same rocks, same kind of system, we’ve got some very encouraging mineralization right at surface at Mark and a number of fairly big areas so I can see that one advancing to drill stage pretty fast. Silver Fox is more difficult, the exposure wasn’t so good, so it took a while to develop the targets, but at Mark the exposure is better, so you can see a lot more, you can see a lot more copper-silver mineralization right at the surface so I can see it advancing to drill stage pretty quick. That was a brand new discovery made by the prospecting team the Kennedys, down there last year. So of course Antofagasta became very interested in it, it’s the same belt of rocks as the Silver Fox, so they have a an option deal to earn a 65% interest.

AT: Can you just give me an idea where these properties are in southeastern B.C.?

JM: Silver Fox is just south of Cranbrook roughly 40 km. The Mark property is north of Kimberley within 20 km roughly.

AT: There’s a lot going on with Kootenay Silver, lots of drilling, lots of action with your JV partners so I just wanted to ask you what kind of catalysts can investors in Kootenay Silver look for, for the remainder of the year?

JM: As you can see there’s lots of drilling catalyst coming, so we've got the classic discovery catalyst potential, that’s what will really drive things. Silver price we track of course, so a breakout in the precious metals is going to be a catalyst as well. Those are the two things that will really make it go, particularly on the drilling side. One thing to mention as well, in addition to drilling at Silver Fox, Promontorio, and La Cigarra, another of our option partners in Mexico will be drilling our Cervantes project in the fall so there will be four different projects drilled this year.

AT: Is that in the same silver belt?

JM: Well Cervantes is a gold porphyry, Aztec Minerals has optioned that and went public on that project. It is in Sonora State, it's northwest of Promontorio about 100 km approximately.

AT: So given what we now know about your team and the properties and your financial position, what would you say sets the company apart from other juniors right now as an investment Jim?

JM: Well two things stand out. One our ability to discover and our ability to raise capital, even in the most difficult of times, to continue advancing the projects. The fact that we’ve already had three discoveries, La Negra does yet have a resource estimate on it , but it will have one soon. So we’ve got this great silver bank, about 140 million silver equivalent ounces, if you will, in our resources and we’re advancing those to be PEA stage. So really there’s three things: our silver resource and assets, our ability to discover and our ability to finance.

AT: Thanks for taking the time to speak to me about Kootenay Silver, Jim. We will continue to follow the projects closely.


View their corporate presentation

For additional information, please contact:

James McDonald, CEO and President at 403-880-6016
Ken Berry, Chairman at 604-601-5652; 1-888-601-5650
or visit: www.kootenaysilver.com