Hercules Silver Leviathan Porphyry Discovery Analysis

There Is Nothing Like The Thrill of Discovery

On October 10th, 2023 Hercules Silver (TSX-V:BIG, OTC:BADEF) announced the results of hole HER23-05 at its Hercules Project in Washington County, Idaho. HER-23-05, the first hole to test a large-scale (>1.8km) blind chargeability anomaly, intersected 185.29 meters of 0.84% copper and 111 ppm molybdenum from 246 meters to 431.2 meters downhole, including 45.33 meters of 1.94% copper. The hole ended prematurely due to drilling challenges encountered at a post-mineral dyke, however observations in subsequent holes indicate that the mineralization likely extends significantly below HER-23-05 at 435 meters.

Hercules Silver CEO Chris Paul added the following quote in the October 10th press release:

“We are incredibly pleased with the grades returned from our first blind drill hole into this new discovery. It has significantly exceeded our expectations, considering phyllic alteration typically occurs outside of the grade shell in porphyry copper systems. The strength of the alteration, veining and mineralization in HER-23-05 and subsequent step-out holes however is demonstrating the presence of a very large system which remains open in all directions.

HER-23-05 also represents the first significant porphyry copper system discovered in the state of Idaho, which breaks the discovery gap between BC and Nevada, presenting an entirely new district for porphyry exploration in a tier 1 jurisdiction.

The Triassic-Jurassic island arc geology of the Hercules Copper Belt is reminiscent of British Columbia’s famous Golden Triangle, where some of the world’s largest porphyry copper systems have been discovered. The Hercules Copper Belt, however, is accessible year-round, with excellent infrastructure and a supportive, pro mining state government.”

The results were impressive enough that the deeper coppery porphyry discovery (now called ‘Leviathan’) grabbed the attention of multiple major global mining companies including Barrick Gold and Rio Tinto. A frantic next few weeks that included multiple corporate site visits and a Twitter Spaces interview between myself and CEO Chris Paul culminated in an announcement on November 6th, 2023 that Barrick Gold had invested C$23,391,907 in Hercules at C$1.10 per share in a non-brokered private placement. The Barrick investment also included 6,804,918 two-year warrants priced at C$1.32.

Prior to the private placement, Barrick held 5,291,500 shares of Hercules (2.73% of issued & outstanding shares). Based on some sleuthing, Barrick had accumulated these shares on the open market in late-October at prices in the $.60 to $.85 range. Then, on November 13th, 2023 Barrick announced that it purchased an additional 7,000,000 warrants to purchase common shares of Hercules Silver for total consideration of C$6,580,000 (C$.94 per share). The warrants were immediately exercised at their exercise price of C$0.11 per Hercules common share. After this warrant transaction,  Barrick holds 33,556,870 common shares and 6,804,918 warrants of Hercules, representing approximately 15.09% of the outstanding Hercules common shares on a non-diluted basis, and 17.61% on a partially-diluted basis.

In total, Barrick has invested roughly C$35 million in Hercules in order to accumulate a 15% stake

Under the terms of its private placement investment in Hercules, Barrick is entitled to anti-dilution and information rights, as well as a right of first refusal in respect of the sale by Hercules of any interest in its 100% owned Hercules Silver Project, located in Washington County, Idaho. Barrick is also subject to a standstill agreement which will prohibit it from acquiring more than 19.9% of the outstanding Hercules common shares.

From these various transactions that enabled Barrick to build its sizeable stake in Hercules we can gather that the deeper copper porphyry discovery is promising enough that it is willing to value Hercules in the C$250 million to C$300 million market cap range. While there is a relatively small near surface silver resource on the project, it is clear that Barrick’s primary interest is in the porphyry discovery. The fact that they aggressively pulled the trigger on this C$35 million investment in the weeks following the hole 23-05 announcement is a strong indication of the upside that they see at Leviathan.

Barrick investment: 

1. Open market buying of 5,291,000 shares (in the $.60 to $.90 range in late October)

2. Private placement at C$1.10 for 21,265,000 shares (November 7th)

3. Warrant purchase for 7,000,000 warrants with $.11 exercise price ($.94 + $.11 = $1.05 per share for 7,000,000 shares) 

4. 6.8 million C$1.32 warrants good until November 2025. 

Additional details were revealed during my 2nd X Spaces interview with Hercules CEO Chris Paul, including the fact that there were multiple comparable offers on the table at the time of the announcement of the Barrick investment on November 6th. Barrick’s willingness to offer world class technical expertise for the 2024 exploration program proved to be the sweetener that moved them ahead of other potential suitors. 

From my vantage point, the fact that multiple major mining companies were offering tens of millions of dollars based on the strength of one drill intercept puts Leviathan in a class of its own. Suffice to say, I can’t recall a similar set of circumstances with multiple companies competing to invest in an exploration stage junior after one intercept. However, the reality is that the historical exploration drilling and near surface mining at Hercules add key context to the deeper copper discovery. I believe it is this context, the geological setting, that makes Leviathan particularly compelling. 

In this video, I delve into the Leviathan discovery and the critical importance of porphyry deposits for global copper production. I also outline some risks, and key factors in determining any future value for the Leviathan Discovery.