Summary
- U.S. Silver & Gold generated $1 million in operating cash-flow for the second quarter which is substantially better than last year's loss thanks to falling production costs.
- This is largely in line with my prediction that costs would come down, although it missed my expectation on low silver prices.
- I remain bullish and believe that U.S. Silver & Gold is improving its operations while trading at a substantial discount to its peers.
U.S. Silver & Gold (OTCQX:USGIF) (referred to as "USSG" hereon) just reported its second quarter earnings results. The company lost $1.5 million versus a loss of $8.3 million in the second quarter of 2013. Revenues fell from $16.9 million to $11.3 million on lower silver prices, although lower production costs and higher production meant that the company generated $1 million in operating cash-flow versus ($6.4 million) last year. Regarding production the company produced 650,000 ounces of silver and equivalents versus production of 460,000 ounces in the second quarter last year. Cash-costs fell 25% to $12.31/oz. while all-in sustaining costs fell 35% to $15.36/oz.
These are phenomenal production figures and they constitute the reason I proposed getting long the stock last month. USSG was a high cost producer that has gotten its costs down to the point where it is one of the lowest cost producers in the industry. Nevertheless, it continues to fly under the radar. It is also grossly undervalued relative to its peers. For instance silver bull favorite Great Panther Silver (NYSEMKT:GPL) is valued 5 times higher than USSG but it produces only 25% more silver at $25/oz.!
The numbers that the company put forth in this earnings report were not quite as good as I had expected as the price of silver was lower than the $21/oz. I used in my July article, and the company had a shipment from its June production reach its destination in July and so the company wasn't paid for this shipment. Going forward I expect that the company's numbers will be even better assuming that the silver price remains steady or rises as the company has room to improve by producing higher grade ore and given that base metals, which are used to offset the cost of mining for silver, have been relatively strong. Given that the stock is lower than my initial recommendation price of $0.52/share (it now trades at $0.47/share due to a falling silver price) I think there is significant opportunity in the overlooked name.
Sincerely,
Canuckman