As the US economy bounces back, confident and emboldened investors are rushing back into speculative stocks and cryptocurrencies (like Bitcoin) with a view to making outsized financial gains.
Lately, it’s been a dominant media story, especially because Millennials are driving much of this fervor, looking for new ways to boost their incomes during such uncertain times.
The rationale is simple: investors want to cash-in on the latest generation of visionary start-ups, while trying to stack the odds by being in the hottest investment sectors.
One of the best sectors for risk-tolerant investors to consider is the world’s small vanguard of primary silver stocks. They offer the most leverage to surging silver spot prices, which have more than doubled since slumping to $12 an ounce in March of 2020.
Sierra Madre Gold and Silver Ltd. (TSX.V: SM) is a stand-out example of a newly-minted silver explorer/developer that just began trading in late April – benefiting from many of the key value drivers that I look for in a prospective home-run success story.
In this case, they include a compelling case for turning an under-developed silver-gold discovery into a world-class asset. They also include top-flight management with renowned mine-finding prowess, an undiluted share structure, plenty of cash in the treasury, and the backing of savvy institutional investors from around the globe.
With 25 years of experience researching mining stocks, I believe I have earned the right to suggest I know an excellent investment opportunity when I see one. The last precious metals company that I singled out for special consideration turned out to be the hottest gold stock of the last decade – Great Bear Resources (TSX.V: GBR).
It ticked off all the right boxes when the company first came to my attention in 2018, while it was trading at around $0.30. Within two years, Great Bear had experienced a parabolic rise to nearly $20 – and is still trading close to its all-time highs. This is thanks to the company making Canada’s most sensational gold find in over a generation.
I am not suggesting that Sierra Madre will duplicate such phenomenal success. However, I do see similar qualities in Sierra Madre, which meet some of my key criteria for a prospective standout success story. Here, outlined below, are the key comparisons.
The Appeal of Low-Hanging Fruit
Precious metals deposits that are mostly concentrated near surface offer the best prospects for inexpensive, quarry-like mining. Great Bear’s Dixie Project discovery in the Red Lake mining camp in Ontario has turned out to be one such find.
Its early-stage drilling also revealed it to be a high-grade discovery, with plenty of potential to be of considerable size. These combined dynamics made me particularly enthusiastic about Great Bear in 2018 – a time when I was not actively covering any other precious metals stocks due to the gold exploration sector being in a cyclical slump at that time.
Sierra Madre bears a resemblance to Great Bear in this key regard. It boasts a very high-grade, near-surface precious metals asset that is very underdeveloped and offers the scope for a much bigger find. Should this prove to be the case, it should be noted that this is primarily a silver discovery with proportionately high amounts of co-mingled gold (up to one third of the value of each tonne of rock).
Interestingly, the Tepic Project already has one advantage over the Dixie Project at this early stage in its developmental curve: Tepic benefits from a preliminary NI 43-101-compliant indicated resource of 7.1 million ounces at 201 g/t of silver equivalent (Ag Eq) and an inferred resource of 3.1 million ounces at 181 g/t Ag Eq.
This speaks to the prospect of a
high-grade open pit deposit. The project is also “open” (continuous at depth and along strike in both directions, attesting to its potential to host a much larger deposit than has been outlined to date. A total of at least 67 drill holes are planned for the coming months, culminating in the planned announcement of an updated resource estimate in Q4 of this year.
A Comparably Early-Stage Investment Opportunity
It bears repeating that my initial investment call on Great Bear came in 2018 just before the company’s share price took off. The company’s initial drilling success came because of all the geological detective work that the company had conducted on past drill results – 169 holes spanning about 33,000 metres.
In other words, the company’s newly-interpreted geological modelling was successful in locating large concentrations of high-grade gold throughout an emerging gold structure of considerable size.
With drilling about to start in Mexico, Sierra Madre is in a comparably enviable position. Having just completed its capital markets launch earlier this month, it too is about to begin its inaugural drill program – one that is also being guided by a reinterpretation of a wealth of historic drill data at the Tepic Project.
This involves over 31,000 metres spanning 149 holes. Remember, this helped with the compilation of a preliminary resource has was completed by a former project operator in 2013.
The advent of drill results that validate the company’s thesis that considerably more buried treasure is waiting to be unearthed promised to be a powerful lever to higher share price valuations. It proved to be the case for Great Bear. And it may well prove to be the case with Sierra Madre too.
Here is the key takeaway here: In both instances, both companies have been able to formulate new, compelling geological models to inform their respective drilling plans – ones which are based on all the historic drilling data in their databases. In so doing, they believe they have found the key to unlocking the value in each of these emerging discoveries.
Soon the drills will be turning for Sierra Madre. Assuming they offer some initial validation of its geological modelling, the share price is also likely to enjoy a re-rating to the upside. In which case, the prospect of a large, near-surface, high-grade discovery being outlined will surely continue to seize the imagination of investors, much like it did with Great Bear’s followers.
Benefiting from Ideal Locations
Just like Great Bear’s Dixie Project, Sierra Madre’s Tepic Project sits at the heart of a rich, well-established mining district. Accordingly, both companies benefit from the ready availability of plenty of mining infrastructure – and in mining-friendly jurisdictions.
This includes power, paved roads, ore processing plants, a regional airport, a robust road system, water, and plenty of other mining infrastructure. Such a scenario typically translates into considerable operational cost savings and lower capex costs, too.
Notably, Great Bear’s expansive Dixie Projects sits at the heart of Canada’s famed Red Lake gold mining district, whereas Sierra Madre’s comparably large property is situated within the Sierra Madre gold and silver belt in Nayarit State – home to a number of world-class mines. So both projects are in ideal locations.
Proven Management: Enviable Track Records
Both Great Bear and Sierra Madre are led by seasoned geologists who have enjoyed considerable success in Canada and Mexico, respectively.
Great Bear’s CEO and President Chris Taylor has enjoyed considerable success in Canada. This initially came with his involvement in the discovery of the world-class Red Chris copper-gold porphyry mine during his tenure with Imperial Metals.
In recent years, he has earned accolades for heading up the discovery of the still-emerging world-class Dixie Project gold discovery, as well as Kodiak Copper’s new potentially world-class copper-gold find in southern British Columbia.
Sierra Madre’s Executive Chairman of the Board and COO Greg Liller has also distinguished himself over the years, focusing on mineral-rich Mexico, rather than Canada.
There, he played a key role in the discovery and development of more than 11 million ounces of gold and over 600 million ounces of silver in combined reserves and resources. In so doing, he was integral to the development of the Magistral, Ocampo, La Guitarra, and El Cubo precious metals mines.
Investment Summary
On a technical note, the company benefits from a sizeable war chest of $14 million in the bank, which will handily finance this year’s drilling. Plus, the company also has the advantage of a relatively tight share structure, with only 64 million shares outstanding.
As was the case in 2018 with Great Bear, management owns a large share position, thereby ensuring plenty of incentivization to steadily build upon the company’s market capitalization via the drill bit.
In fact, the advent of a steady stream of drilling results in the coming months, matching with buoyant silver prices, makes for an ideal combination to power the company’s share price to higher levels.
Furthermore, there are plenty of reasons why industrial demand is as much a big driver for silver prices these days as is the case with investment demand – not the least of which is silver’s role as a key ingredient in lithium-ion batteries and solar panels. These dynamics are clearly articulated on Sierrra Madre’s web site at
https://sierramadregoldandsilver.com/investors
Keep in mind the fact that silver stocks typically offer meaningful leverage to silver’s upside performance. In other words, they usually outperform the grey metal by large margins. Sierra Madre therefore appears primed to become a good example of this market reality.
I’m willing to bet that I know another winner in the making when I see one. With all the right ingredients for success, Sierra Madre Gold and Silver is indeed a strong candidate to outperform in 2021. So don’t take your eyes off this stock.
ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, WallStreetOnline.de (Germany) and the Independent (UK).
He has also appeared in business interviews on the BBC, CBC, and SKY TV. An enthusiastic shareholder of Sierra Madre Gold and Silver, his opinions are therefore biased and should not be relied upon for making investment decisions.
FULL DISCLOSURE: Sierra Madre Gold and Silver Ltd. is a client of Stockhouse Publishing.