Alien Metals shares surge on the back of new Elizabeth Hill silver deal

What’s the price of silver doing these days?

Answer: it’s up by around 30% over the past year or so. 

The more pertinent question to ask, though, is what’ s the gold-silver ratio looking like. And the answer to that question is intriguing. The ratio between the value of an ounce of silver and an ounce of gold is now more than 90, a historically high level.

Seasoned market watchers argue there’s only two ways things can go from here. Either gold will come down, or silver will go up. 

And, what with inflation, tariffs, wars and an ongoing disillusion with fiat currency, the smart money is saying that silver will go up.

Another factor in all of this, though, is that there just aren’t that many good silver projects around. This issue was highlighted on these pages a week or so ago by Randy Smallwood, the chief executive of Wheaton Precious Metals. It’s a multi-billion dollar company now but, as many will know, it’s name was changed some way along that path to growth. Silver Wheaton was the old name, but try as he might Smallwood just couldn’t get enough silver into the company. In came gold, and the rest is history.

All of which goes to show that if you’ve got a promising silver project, you’re really onto a good thing.

Now Alien Metals () has had the Elizabeth Hill silver project in Western Australia for a fair few years now, but to this point the market hasn’t been ascribing much value to it. Alien, as we know, is listed in London, where retail investors have been running scared since at least the end of Covid. So you could argue that actually, London isn’t ascribing much value to anything at the moment.

That’s not true of everywhere, though.

In Australia, for example, where mining is in the DNA, investors are clamoring after silver projects, and have been delighted to find Elizabeth Hill ready and waiting in their back yard.

Because Alien has just announced a transaction on Elizabeth that looks likely to unlock a lot of value all round. True, London took a little while to wake up to the full significance of the deal – Alien’s shares doubled on the news, but only after a bemused pause while opportunists snuck in under the radar and then proceeded to point out how positive the news really is.

Alien will vend 70% of Elizabeth Hill into an Australian vehicle called Errawarra Resources. Under the terms of this transaction, Alien will then be carried all the way through to a decision to mine. 

Quite how much silver there is at Elizabeth Hill remains an open question. But we do know certain key details. The project has been previously mined and produced over a million ounces of silver at grades of over 2,000 grams per tonne. For the avoidance of doubt, that’s high. What’s more, drilling on the project has hit grades as high as 5,000 grams per tonne. So, there’s no doubt about the quality of the ore – or paydirt, as the Aussie say.

When silver was out of style, that might have produced little more than a shrug from the entrepreneurs in Perth and Sydney. But it isn’t out of style. Gold, as well as its increasing use in hi-tech industrial applications has brought it back into style.

So, at the same time as Alien vends in its 70% to Errawarra, Errawarra will raise A$3 million on the Aussie market to take Elizabeth Hill forward. Remember, once this transaction completes, Alien won’t have to spend another penny on Elizabeth Hill until capital for construction is required. And you can bet that if Elizabeth Hill reaches that stage, it’s valuation will no longer be in the single-digit millions. 

30% of that upside will be nice to have indeed.

Market regulations in London, though, meant that that message was initially lost in an initially convoluted announcement. Was Alien giving away its upside? 

Maybe, but look at it like this. 

On the current valuations, allowing for daily fluctuations, Alien’s stake in Elizabeth Hill following the transaction is worth around A$7.7 million. This includes, Alien’s 30.5 million shares (12.1%) in Errawarra and its 30% direct interest in Elizabeth Hill. But if the Errawarra share price were to double on, say, exploration success or news of a maiden JORC resource, Alien’s stake would be worth £15.3 million – and at no extra cost to the company, remember.

If something really big begins to be developed, then the value of the Alien stake could go higher still. In a project like this, success will breed success.

So, what else is new? Mining is a risky business, and things don’t always turn out as planned. The silver upside in this transaction looks very attractive, but if it doesn’t pan out Alien still has the Hancock iron ore project. In fact, now that it’s offloading the day-to-day running of Elizabeth Hill, Alien will be free to focus more on Hancock. 

And already there are market whispers that a transaction may be afoot for this project too. Alien has been using Sternship, a corporate advisory firm in Perth, to advise it on options. The word is that via Sternship several interested parties have made themselves known.

But that’s a story for another day.