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Reyna Silver: Getting Ready to Drill Guigui
Contributed Opinion

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Thibaut Lepouttre Thibaut Lepouttre, editor of the Caesars Report, offers his analysis of the latest news from this Mexican explorer drilling in a historical mining district.


Reyna Silver Corp. (RSLV:TSX.V; RSNVF:OTCMKTS) has now received the drill permits for the Guigui project in Mexico's Chihuahua state. The company has been trading for about six months now and Reyna is ready to hit the ground running, with an initial 10,000-meter drill program at its flagship Guigui exploration project.

A recap of the Guigui project

The location of the Guigui property is interesting. It's located in the middle of the Santa Eulalia Mining district, surrounded by known mineral occurrences and mines, and having the city of Chihuahua in close proximity will keep exploration expenses down.

The location in the Santa Eulalia district is important, as this is one of the premier CRD (carbonate replacement deposit) structures in the world that traditionally contain very high-grade mineralization. Peter Megaw, cofounder of MAG Silver Corp. (MAG:TSX; MAG:NYSE A) is one of the world's most renowned specialists on these types of deposits, and Reyna Silver has appointed Megaw as chief technical advisor.

Looking back at the history of Santa Eulalia, the first occurrences of mineralization in the region were confirmed over a hundred years ago and the district was mined using the basic tools that were available at the time. A total of 51 million tonnes of rock has been pulled out of the ground and was processed to recover the silver and base metals.

However, the source of the hydrothermal system that mineralized the areas has never been found, and it is Reyna's belief the source of this system may actually be located at Guigui land, as Megaw has been studying these CRD systems for the better part of the last half-century and all data appears to be pointing to the Guigui area as host of the source.

And Reyna isn't just going on a wild goose chase. The project has been subject to a few drill programs and MAG Silver encountered the typical silver-lead-zinc mineralization on the northern edge of the license boundaries. These intervals were quite narrow but did encounter the right grades, and according to the recently announced drill program, Reyna Silver will indeed focus on the northern portion of the project, where it also recently acquired the La Chinche zone, a land package bordering the original Guigui land position at the north.

La Chinche is being purchased from two separate groups. Reyna has committed to making a combination of cash and warrant payments, as well as making certain exploration commitments. Reyna will have to make a US$42,000 cash payment, issue 500,000 shares and 11.5 million (11.5M) warrants, which will have to be issued every six months at exercise prices of CA$0.74 (1M warrants), CA$0.75 (3M warrants), CA$1.00 (3.5M warrants) and 4M warrants at CA$1.25.

This actually is a very intriguing acquisition structure. It limits the cash outflow upfront and technically the vendors of the property will be making cash payments to Reyna Silver if the company is successful. Should the share price exceed the respective exercise prices and assuming ll warrants would be exercised, Reyna Silver will receive approximately CA$11.5M from the vendors, which will actually make their money on share price appreciation rather than being paid upfront.

The upcoming drill program

Shortly after announcing the drill permits just a few weeks ago, Reyna Silver already got active in the field, as it kicked off an initial drill campaign right away. The current drill program will consist of 10,000 meters of RC (reverse circulation) drilling, and as RC drilling is still relatively cheap, Reyna Silver is earmarking CA$1.8M for this drill program, which will provide valuable information on the Guigui project.

According to Peter Megaw, the chief technical advisor to Reyna Silver, the initial holes will be targeting a series of geological targets and anomalies that coincide above the zone, where his self-developed CRD exploration model puts the hot spot of a mineralized system. The Santa Eulalia district has been a very prolific producer, as shown in this overview of historical CRD deposits in the wider region (including some U.S.-based projects), but according to the company's exploration theory, there's more to be found.

As you can see, the Santa Eulalia district had a cumulative production of 51 million tonnes of rock, which resulted in the production of roughly half a billion ounces of silver, in excess of 6.5 billion pounds of lead. and about 5 billion pounds of zinc. An extremely prolific district, but the source of this CRD system has never been found, and that's exactly what Reyna Silver is going after.

Reyna Silver still has plenty of cash

Although the silver hype (when every company saw its share price appreciate just because it had the word "silver" in its company name) appears to be over and gold is once again the precious metal most investors are focusing on, the silver price remains strong. At the current price of almost $25/ounce, the silver price is trading about 50% higher than the $15–$17 range it had been trading in before.

At the end of September, Reyna Silver had a positive working capital position of around CA$10M, including CA$11.9M in cash. And that is a very comfortable position to start with a dedicated exploration program.

And considering all of the warrants are currently in the money, we can reasonably expect Reyna Silver to continue to see a cash inflow as investors start exercising warrants. As of the end of September, Reyna had 15.2 million warrants at CA$0.45 left, as 1.32 million of those were already exercised, and subsequent to the end of September, an additional 1.53 million warrants were exercised, according to the financial statements. This means that since the end of September, Reyna Silver has received at least an additional CA$700,000 (and likely even more) from warrant exercises, which keeps the treasury healthy. Additionally, the initial 1 million warrants issued to the vendors of the La Chinche property (1M warrants at CA$0.74) are also in the money, and considering they expire within a year after the issue date, we can expect the vendors to exercise those warrants.

Considering even the CA$0.90 warrants are in the money, the total cash inflow related to the warrant inflow (using 13.7M warrants at CA$0.45) would be CA$11.9M. This does not include the additional warrants Reyna Silver will issue to the vendors of La Chinche in 2021 and 2022.


After preparing the Guigui project for drilling and consolidating additional claims bordering the existing Guigui land package, Reyna Silver is finally getting ready to drill-test its exploration theory. A drill program has now kicked off for an initial 10,000 meters and this likely means we will see the first assay results towards the end of January.

Thibaut Lepouttre is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals. Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.


1) Thibaut Lepouttre: The author has a long position in Reyna Silver. The author's company has a financial relationship with Reyna Silver. The author determined which companies would be included in this article based on his research and understanding of the sector. Additional disclosures are available here.
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5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Reyna Silver, a company mentioned in this article.

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