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Gold/Mining/Energy
HULDRA SILVER

An SI Board Since January 2004

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Emcee: The Barracuda™	Type: Unmoderated

Introduction Market Data Compact

HULDRA SILVER

Synopsis
Huldra Silver Inc is an old-fashioned exploration junior with only 6,924,519 shares fully diluted and a management team which is determined to put the high grade silver-lead-zinc Treasure Mountain deposit into production and nothing else. The Treasure Mountain play, which would go into production at 200 tpd or less, is of limited interest to the brokerage establishment because of its small scale. But it is ideally suited as a leveraged bet on silver for speculators who believe that silver prices will end up substantially higher than $5.50. Although the proven and probable reserve has a recoverable gross value of only US $28 million at $5.50 silver, and would be depleted within two years at 200 tpd, this narrow vein system has sufficient strike and depth to conceivably host over 1 million tonnes of ore. An analogy would be the old Beaverdell Mine in southern British Columbia, which operated for 89 years with nary more than a couple years of reserve and eventually produced 46 million ounces of silver. Treasure Mountain presently has a reserve of 3.7 million ounces of 25.37 opt silver outlined through about $5 million worth of underground development and drilling done in the late eighties. About $200,000 worth of permitting work related to the tailings pond is still required for a mining scenario that falls under the 75,000 tonnes per year or less permitting regime. Based on an economic analysis done in 1998 management believes that a US $6.29 silver price is needed to justify a production decision with the Canadian/US dollar exchange rate at 1.30. Consideration is being given to raise the $200,000 or so needed to fund the permitting work so Huldra can be in a position to make a production decision in early 2005. If all goes as planned Treasure Mountain could be in production in early 2006. At $5.50 silver the 2 year minining scenario is marginal, but if a speculative extrapolation to a 14 year mine life is made, the net present value jumps into the $5-10 per share range. At $10 silver the NPV of the 2 year mine life jumps into the $2-3 per share range, and in the 14 year scenario it jumps into the $10-17 range. These numbers, which depend on the degree of dilution Huldra must suffer to fund the project's capital costs, suggest that the stock would be very responsive to the long-awaited breakout in the price of silver to $10 or higher. Mainstream skepticism that a price of $10 or higher would be sustainable for any meaningful duration would likely be ignored by the silver bug audience that Huldra already appears to be attracting. Huldra is an old bottom-fish buy recommendation in the $0.20-$0.29 range that has been neglected over the years because the company has been in hibernation as it awaited stronger silver prices and a better mine development climate in British Columbia. Both these conditions are improving and the stock has risen to the $0.40-$0.50 level due largely to silver speculators familiar with the Huldra story. Even though management comes across as though it is trapped in a time warp, and is not likely to get the time of day from the brokerage industry, the relatively modest capital requirements of this play, its leverage to higher silver prices, and management's straight-shooter mentality is bound to attract the deep-pocketed investors needed to turn Huldra Silver into a viable silver play. My analysis is that a significant speculation cycle is brewing for Huldra Silver Inc, and consequently I have elevated this bottom-fish to Spec Cycle 100% Hold status.
Story
Summary: Treasure Mountain Project, British Columbia

View of
Treasure Mountain
Huldra Silver Inc, which owes its name to a Swedish female leprechaun that stashes silver in her burrows, owns 100% of the Treasure Mountain silver-lead-zinc vein deposit in southern British Columbia. The presence of high grade veins has been known since 1894, but the system was not delineated and properly understood until the 1980's when Magnus Bratlien and his associates undertook exploration of the project. They took advantage of the flow-through boom in the late eighties to fund over $4.5 million of underground development work that outlined a system of narrow veins. Weak silver prices during the nineties prompted management to cut expenses and maintain the project in anticipation of higher silver prices. Overtures from various parties to take over Huldra and turn Treasure Mountain into a stepping stone for a silver concept vehicle were rejected over the years. Management has kept the fully diluted shares below 7 million and single-mindedly adhered to the notion that one day silver prices will be high enough to justify putting Treasure Mountain into production as a small scale silver mine. In the process management was left behind in what might be called a time warp, for the market has expanded the minimum size threshold for a mine contender well beyond the limits of Treasure Mountain. But several factors have changed in Huldra's favour. One development is the departure of the New Democratic Party as the ruling provincial government in British Columbia. The anti-mining stance of the NDP turned British Columbian mining plays into non-starters. But now British Columbia has a new government which has boosted the size for small mine permitting to a level very favorable for Huldra. Another development has been the rise of the silver bug cult, which is even more extreme than the gold bug cult in its belief that silver prices have been artificially suppressed and must one day rise to $10 or higher. The latter development is important for Huldra because it represents a specialized audience that is willing to embrace a speculative scenario Huldra would not otherwise be able to finance. This speculative scenario is that Treasure Mountain could be put into production within two years, enjoy a huge blast of cash flow from temporarily higher silver prices, and settle down into a long-lived silver mine that will be profitable even if silver slumped back to $4.50. Because the development timeline is fairly short, Huldra's funding needs are minimal over the next year, and its capitalization is small, it is entirely conceivable that silver speculators could drive the stock to $2-3 where the capital cost to develop Treasure Mountain could be raised through equity at less than 30% dilution. The risk is that management's assessment of the costs and permitting requirements is unrealistically optimistic.

Location and Ownership Terms
The Treasure Mountain property is located in the Cascade Mountains near the headwaters of the Tulameen River in southern British Columbia, Canada. It falls within the Similkameen Mining Division and is accessible from the Coquihalla Highway by 40 km of all-weather gravel logging road. Elevation ranges from 4,000-5,6000 ft. As the crow flies Treasure Mountain is 27 km east of Hope. Huldra Silver Inc owns 100% of the 1,214 hectare property. There are no royalties or carried interests.

Exploration History

Surface Plan
Treasure Mountain hosts a high grade silver-lead-zinc vein system that was discovered in 1911. A 20 metre shaft was sunk in 1912 and three adits were developed, with 21 tonnes of high grade ore finally shipped in 1926. Several railcar loads of sorted ore were shipped to the Trail smelter. A small mill was built in 1930 and operated intermittently until 1934. The property then lay dormant until 1951 when Silver Hill Mines Ltd acquired the property and built a 45 tonne per day mill. Silver Hill managed to ship some zinc concentrate to Trail, but dismantled the mill in 1957, whereupon Treasure Mountain became dormant once again. In 1979 Magnus Bratlien optioned the property from E. Borup and formed Huldra Silver Inc. Huldra explored the property from 1980-85 with work that included diamond drilling. The drilling provided only limited success, but fieldwork did lead to the realization that mineralization was associated with a feldspar porphyry dyke that fills a major east-west structure known as the Treasure Mountain fault. A 1985 trenching program uncovered the high grade C vein, and in 1986 further trenching revealed the parallel D vein. Huldra initiated a bulk sampling program in 1987 whereby it excavated a large open cut and mined 4,500 tonnes of silver-lead-zinc ore. Huldra shipped 390 tons to Trail and 17 tons to Asarco, and received Cdn $344,265 for ore that graded 100.3 opt silver, 32.7% lead and 6.8% zinc. On August 7, 1987 Huldra completed an IPO of 350,000 shares at $1.10 and shortly thereafter began to conduct a series of flow-through private placements to fund an underground rehabilitation and drifting program. Huldra rehabilitated 650 metres of existing adits and drove 1,150 metres of additional adits. This led to a resource calculation in 1989 by Orecon which estimated a proven and probable reserve of 146,600 tons of 25.37 opt silver, 4.53% lead and 5.29% zinc. Potential for an additional 180,000 tons of similar grade has been inferred for the area developed by the underground adits. A metallurgical study in 1988-89 by Bacon Donaldson Ltd indicated a recovery of 95% for silver, 85-90% for lead and 80% for zinc with conventional milling. The concentrate ratio is 20%.

Geology

Magnus Bratlien
Checking Outcrop

Regional Geology
The Treasure Mountain Property lies within a northwest-trending sedimentary-volcanic basin known as the Methow-Tyaughton Terrane which is bounded to the east by the Pasayten Fault and the Eagle Pultonic Complex, and to the west by the Hozameen fault and the Hozameen complex. The property is underlain by fine to coarse clastic sedimentary rocks of the Cretaceous Pasayten Group which in the western part of the property are in thrust fault contact with the Jurassic Dewdney Creek Formation (volcaniclastic and sedimentary clastic rocks, andesitic flows). The stratigraphy has been intruded by dykes and sills of diorite, feldspar porphyry and quartz feldspar. The biggest is a northeast trending Tertiary feldspar porphyry dyke that runs parallel to or coincides with the Treasure Mountain fault. It dips 55-65 degrees to the southeast. It is significant because it has a close spatial relationship to the silver-lead-zinc veins. The mineralization consists of a "steeply dipping, discontinuous sheet-like or tabular system of sulphide-rich veins that are hosted primarily within the Treasure Mountain fault" ("Preliminary Geology of the Treasure Mountain Silver-Lead-Zinc Vein Deposit" by R. E. Meyers and T. B. Hubner, Exploration in British Columbia 1989). The veins, which generally follow the hanging wall and footwall contacts of the dyke but sometimes occur within sedimentary contacts and breccia zones, range in width from a few centimeters to more than one metre. Massive vein mineralization averages 0.25 metres in width, but disseminated mineralization can extend a metre or two into the wallrocks. The main minerals are silver-bearing galena and sphalerite. The silver occurs within the galena as exsolved argentite and native silver. Sulphide-poor ruby silver mineralization has been encountered, though its significance has not been quantified. The vein system has been traced over a strike of 2.5 km and to a depth of 600 metres.

Resource Model and Development Plan

Resource Model
Longitudinal Section
The proven and probable resource has been calculated by Orecon Inc at 146,600 tons of 25.37 opt silver, 4.53% lead and 5.29% zinc, which in metric terms converts into 133,273 tonnes of 870 g/t silver, 4.53% lead and 5.29% zinc. An additional 160,000 tonnes has been placed in the inferred category. These resource calculations likely need to be updated to conform with 43-101 specifications. The estimates are based on 9,000 ft of crosscuts, drifts and raises plus 5,500 ft of underground drilling and 10,000 ft of surface drilling done mainly in 1987-89 at a cost of about $4.5 million. In 1998 Al J. Beaton, who acted as the contractor for the underground program and who previously had managed the Erickson Gold Mine, conducted an analysis which recommended a seasonal (7 month) operation of 150 tpd with an operating cost of Cdn $100/t and a capital cost of $3.5 million. The scale was designed to fall under the 25,000 tonnes per year small miner exclusion permitting system in existence at the time in British Columbia. The scale has apparently been increased to 75,000 tonnes per year. During the nineties the Treasure Mountain project was dormant except for occasional small programs investigating additional zones. At prices below $5.50 silver the Treasure Mountain deposit is too small to bother developing, but at $5.50 or higher two scenarios emerge with lucrative implications. At $5.50 silver a 200 tpd mining operation would deplete the deposit within two years, achieve payback, and produce sufficient cash flow to develop additional reserves through the underground workings. This raises the possibility that Treasure Mountain could operate many years without ever having more than a couple years of ore in reserve. The closest analogy would be the Beaverdell Mine (also sometimes referred to as the Highland-Bell Mine) at Beaverdell, British Columbia. Teck-Cominco and predecessors operated Beaverdell for 89 years, during which the mine produced 46 million ounces of silver. Initially operated at 50 tpd, the mill's capacity was eventually increased to 120 tpd. The ore, which graded 10 opt silver, 1% lead and 1% zinc, was shipped by rail to the Trail smelter. Huldra, whose Treasure Mountain ore is higher grade, hopes to turn Treasure Mountain into a similar mine that operates for many years. Huldra has completed hydrology and wildlife studies. The main permitting step still required relates to tailings pond tests. Huldra estimates that it can fulfill all the permitting requirements in 2004 at a cost of about $200,000. If a permit is in hand by the first quarter of 2005, and the capital costs are financed, Treasure Mountain could be in production by early 2006.
Discounted Cash Flow Valuations for a Simplified Mining Scenario
Huldra Silver Inc - Treasure Mountain Project, British Columbia, Canada - December 22, 2003
The Treasure Mountain project consists of a narrow high grade silver-lead-zinc vein system that does not lend itself to a larger operation than 200 tpd. At that rate Treasure Mountain qualifies for the less stringent permitting regime in British Columbia for small mines producing less than 75,000 tonnes per year. The project requires one more year's worth of permit-related work estimated to cost about $200,000. This style of deposit is generally not developed and operated with more than a couple years of reserves blocked out. As a result of underground development done during the late eighties Treasure Mountain has a proven and probable reserve of 133,273 tonnes grading 870 g/t silver, 4.53% lead and 5.29% zinc. Another 160,000 tonnes of similar grade is in the inferred category. The vein system has been traced over a strike of 2,500 metres and to a depth of 600 metres; it is conceivable that over time more than 1 million tonnes can be developed and mined. The development strategy contemplated by management is to develop and operate a mine at 200 tpd which will deplete the proven and probable reserve within two years of startup, which at $5.50 silver would generate modest revenue of about US $28 million, achieve payback, and have a modest after tax net present value of about US $4 million. In this scenario Treasure Mountain is not worth developing. To make it worthwhile one must make at least one of two assumptions: the first is that sufficient new ore can be blocked out annually to keep the mine operating for 14 years (ie 1 million tonne resource), and the second is that during the first two years of mining significantly higher silver prices will prevail. Some combination of these two assumptions would also work. The first table shows the impact higher silver prices have on a two year mine life, and the second table shows what happens to net present value if the mine life is stretched out to 14 years. It is assumed that the project can be fully permitted by Q1 2005 and in production by Q1 2006. Although the Treasure Mountain Mine would be small, the low number of shares outstanding and the sensitivity to higher silver prices would turn Huldra into a publicly traded leveraged bet on silver. The capital and operating cost numbers are higher than those used by Al Beaton in a 1989 study, and need to be updated. The resource figures may also not conform to 43-101 specifications. This simplified analysis is intended only as a guide to the speculative valuation possibilities for the Treasure Mountain project.

kaiserbottomfish.com

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