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May 14, 2007

By: Don Hansen

SILVERAXIS.com

In this, my fourth article on the Value Strategy for Investing in Silver Mining Shares, I will present my assessment of Impact Silver (IPT in Vancouver, ISVLF on Pink Sheets). Impact Silver is also, like my first three companies – Endeavour Silver, Great Panther and First Majestic, a Canadian company operating primarily in Mexico. I say primarily because Impact also has property in the Dominican Republic, but I will be focusing here only on what the company is currently doing in Mexico.

Impact Silver

Consistent with my strategy criteria, Impact is in production, has positive cash flow, and was profitable on a full cost basis in 2006. The latter feature is true of very few of the recently producing miners in Mexico one would consider its peers.

Impact has three properties, each of which has excellent potential for developing large high grade resources. I believe this to be true because the most likely places to find valuable ore bodies is in areas where they have already been found, and recent drilling confirms their presence on Impact's properties.

Impact's primary Mexican properties are the following:

1.  Zacualpan property with 500 TPD mill.

2.  Zacatecas property with 200 TPD mill.

3.  Mamatla property adjacent to the Zacualpan property on one side, and Farallon's Campo Morado project on the other side.

In the case of the Zacualpan and Zacatecas properties, they contain many current and past producing small mines. The past owners did nothing akin to modern resource exploration, and what Impact has already done indicates considerable potential in both areas.

With the recently acquired Mamatla property, very recent drill results indicate very good ore grades, especially for gold. This property was extensively drilled by previous owners, but abandoned when resource prices were low in the 1990's. Impact's geologists believe this property contains extensions of what is already known to exist on their adjacent Zacualpan property, and the adjacent Farallon project which will have an operating mill up and running in 2008.

Past exploration data for Mamatla was included in the purchase, and gives a great deal of information about where to drill next. I have been told that previous owners spent about US$20 million exploring Mamatla about 20 years ago, so they obviously believed that there was valuable ore present there. It is no surprise then that Impact's early drill results were very promising.

Speaking of drilling, Impact has two unique characteristics in this regard. First, in this era of very high exploration activity where many companies are finding it difficult to get drills rigs when and where they need them, Impact has no such problem. This is because Impact has a sister company named Energold Drilling, which is a very profitable driller and a potentially excellent investment in its own right, but I will not go into that here. Also, Energold owns about 15% of Impact's shares.

Second, CEO Fred Davidson has an uncommon view of developing NI43-101 compliant resource numbers. He claims it costs way too much to do this and that shareholder money can be better spent acquiring more properties and/or doing new exploratory drilling. Fred is not interested in drilling extra holes to achieve NI43-101 compliance when the only purpose would be to impress the market and pump up the share price in the short term.

Okay, so what kind of profits can we expect from Impact? Alas, the company is more conservative than most others and therefore I was unable to obtain forecasts of sales and profits. But, Impact did give me enough detail about their future plans to make it possible to guesstimate its revenues for 2007 and 2008, and I present them below. I made my own assumption for operating expenses for 2007 and 2008 as noted below since management was uncomfortable providing their own. All dollar amounts are in US$ millions unless otherwise noted.

*Calculated as the mid-point between the Market Multiple for 2007 and 2008 for reasons explained in previous installments of the Value Strategy series.

I believe that Impact is an excellent investment opportunity at current prices. Impact's market cap is low compared to that of its peers, and the properties the company is developing present as high a probability of success as any you will find in this business in my opinion. Yes, the management is conservative, and this may have held back the share price. They also spend very little on marketing and promotion compared to their peers – only about 20% as much by one estimate. However, this conservative management may in the long run produce greater success with less risk for the investor. And, Fred Davidson has a long history of success in the mining business. I believe there is significant unrealized value in this company. It may take a bit longer to present itself, but it should more than justify the investor's patience. 

By way of disclosure, I own shares of all the companies featured in this Value Strategy series. Also, no one has asked or paid me to write these articles.

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Don Hansen is a retired entrepreneur who has been investing in silver mining stocks since 2001.

Disclaimer: We hope others will find this approach interesting and useful in making their investment decisions but we caution all investors that this is not an investment recommendation and that each investor must consider his or her own investment criteria, horizon, suitability and other factors before making an investment in these or any other stocks. Inexperienced investors should consult with a registered investment advisor. Information contained herein is believed to be accurate but we make no guarantees to that effect. We are under no obligation to correct errors or update any information, which is only timely as of the date of publication. Forward-looking statements and estimates are the author's own opinion only and any information obtained directly or indirectly from the company is protected by safe harbor laws. Furthermore, all viewpoints expressed herein are solely those of the author and do not necessarily represent the opinions of www.silveraxis.com. The author and persons associated with www.silveraxis.com own shares in all of the companies mentioned and therefore are biased in their favor. No compensation was received from the companies mentioned nor was the author asked by anyone to produce this commentary.

Copyright © 2007 Don Hansen - contact www.silveraxis.com for reprint permission