Northair and Kootenay Combining to Create Mexican Silver Consolidator

February 28, 2016

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Northair Silver Corp (TSXV.INM) has a NI43-101 compliant silver resource at its La Cigarra project in Chihuaua State, Mexico; only 20 kilometers away from two large producing mines which have been mining silver for hundreds of years. The company also has two million dollars in its treasury and its President & CEO, Andrea Zaradic is confident that La Cigarra will “be a mine one day”.

So why does an amalgamation with Kootenay Silver Inc. (TSXV.KTN)  another Mexican silver explorer with two promising silver assets in Sonora State, make sense at this time in the market cycle?

Zaradic, a mechanical engineer by training, took over as CEO of Northair in 2014 but she has had her eye on the company for much longer. “In 2012, while I was the CEO of a company called Troon Ventures Ltd., which was a cashed up shell, looking to acquire mining assets, I traveled to the Parral Mining District in Mexico to visit Northair’s La Cigarra silver project.  It quickly became apparent that this was an asset with substantial merits and really stood out.”

Shortly thereafter, Zaradic led Troon Ventures into a successful merger with Grenville Strategic Royalty Corp (TSXV: GRC) where she currently serves as an independent director.  Now free of her Troon CEO duties, she was able to transition into Northair when the long time CEO decided to retire in 2014. “I was very excited about the opportunity at Northair and the potential to make further discoveries at La Cigarra.  Shortly after signing up to work with the company, a window opened in the market to complete a financing and we were able raise $4 million dollars. These new funds allowed Northair to update the mineral resource estimate in January 2015 increasing the tons and grade of the deposit, complete a metallurgical program which we reported in June 2015 as well as conducting an airborne geophysics program, which identified several new exploration targets on the property.  In addition to having a great project, Northair is supported by the local community which is considered a mining friendly jurisdiction and home to people who have been mining all their lives.”

But there was a problem. Silver prices had been steadily declining and with them the Northair share price. “We were a bit distraught because of the silver price. We had to take serious steps because of the market. We cut our overhead, our staff, our G&A. Which has left us two million dollars in our treasury.”

Zaradic is a deal maker. She set the wheels in motion for the reverse takeover of Troon, and she was instrumental in the merger of Magma Energy & Plutonic Power (now Alterra Power). She is also something of a student of business history.

“Silver consolidation works.” she said. “Silver Standard, First Majestic and Pan American are all the result of silver consolidation when the price of silver was depressed in the early 2000’s. Pan American went from $2.50 a share in 2000 to $41.00 per share in 2008, First Majestic went from $.05 to $23 and Silver Standard went from $1.25 to 37 dollars all in that same period.”

With metal prices low, Zaradic believes that what happened from 2000 to 2008 could happen again in precious metals. “We see First Mining Finance (TSXV: FF) in the gold sector buying gold assets, climbing to a market cap of +$100 million in a very short period of time. The market likes consolidation. Since we announced our deal with Kootenay on January 13 our share price has doubled.”

For the consolidation strategy to work Zaradic believes companies have to grow when the metal price is depressed so that they are large enough to leverage what she sees as an inevitable rebound in the silver price. When silver prices dragged along in 2015, Zaradic, as a strategic exercise began to look at other silver companies just as those companies were looking at Northair to find a fit.

Kootenay Silver was certainly a fit on an asset basis and geographically having its flagship silver property in Mexico as well. At the time the transaction was announced Zaradic stated, “La Negra and La Cigarra represent two of the highest profile new silver discoveries amongst non-majors in Mexico. The continued exploration successes at our flagship projects put the combined company in a strong position, distinguishing us from our peers.”

Zaradic says “The combined company will be in a strong financial position to execute its consolidation plan while simultaneously advancing its flagship assets.  A position that will be bolstered by a $2,000,000 investment into Kootenay by Pan American as part of an option agreement on Kootenay’s Promontorio Mineral Belt silver properties. An agreement which brings not only the investment but also up to $16 million US of expenditures and payments to Kootenay along with a pathway to production in the form of a 25% carried to production interest.”

The option agreement between Kootenay and Pan American was announced February 16, with closing anticipated early March 2016 and the direct investment by Pan American may increase to nearly $3.3 million post-Northair acquisition closing. “Pan American is one of the largest silver producers in Mexico.” said Zaradic “It has tremendous operating experience in Mexico and Kootenay’s Le Negra deposit is highly attractive given its close proximity to one of Pan American’s operations which is beginning to run out of material.”

Upon closing of the transaction with Kootenay, Northair shareholders will receive, for each common share of Northair held, 0.35 common shares of Kootenay, plus 0.15 of a tradable warrant to purchase Kootenay common shares at an exercise price of $0.55 for a period of five years from closing. Upon completion of the Transaction, Northair will become a wholly-owned subsidiary of Kootenay, and former shareholders of Northair will hold approximately 40% of the shares of Kootenay on an outstanding shares basis.  If Zaradic is right about silver consolidation and if the history of the 2000 to 2008 run were to repeat itself, the company shares have significant home run potential.

Once the transaction between the two companies is completed, plans call for further consolidation along with drilling and exploration at La Cigarra under the Kootenay management team and advancement of the Promontorio Mineral Belt silver resources under the option agreement with Pan American.

Zaradic herself will maintain her involvement as a director of Kootenay. “This is the first step in our growth strategy of silver consolidation.” said Zaradic, “We have probably turned the corner on the silver price. In a year or two or maybe three the price of silver should rise.”

When it does, Northair shareholders will be in position to take full advantage of the potentially explosive growth in a well leveraged Mexican silver consolidator.

At time of writing Northair was trading at $.09 with 150.1 million shares outstanding and a market cap of $13.51 million. Kootenay was trading at $.26 with 79.4 million shares outstanding and a market cap of $20.25 million.

[Both Northair and Kootenay will be attending the PDAC Conference in Toronto March 6-9. Andrea Zaradic will be presenting at the National Post Investor Forum Monday March 7.]

Category: General