Silverstone being groomed "Silver Wheaton #2"The real story behind the story is that Silverstone is being groomed to become a silver producer. This is huge. Overnight, Silverstone is becoming an active silver producer instead of seemingly a barely-active silver exploration company. Silverstone will have credited to its books an estimated 1.2 million ounces a year of silver, up from 0 ounces of silver in 2006. The management of Silverstone is consciously setting this up to follow the Silver Wheaton model, giving Silverstone the premium for the same silver which is lost in the shuffle among various other metals produced at Capstone's Cozamin mine in Mexico. In addition, this silver will be 100% silver, not silver plus zinc or silver plus copper, making Silverstone a rare company with 100% of revenues from silver sales. Welcome to "Silver Wheaton #2". Capstone benefits from all this by getting substantial upfront cash and shares from Silverstone, and will benefit from the higher share price obtained by Silverstone in the future. Capstone will employ this cash in some manner to benefit shareholders, whether that is a cash dividend or a major acquisition to come.
This 1.2 million ounces is subject to silver production increases at the Cozamin mine. A big expansion of production capacity is underway at Cozamin. This 1.2 million ounces is just for starters and compares to Endeavour Silver which had 1.65 million ounces of silver production in 2006. However, the market cap of Silverstone is only a fraction of that of Endeavour, and is subject to substantial increase (ie., the stock price will have to increase).
Today's news release was limited to the facts of the letter of agreement and did not attempt to communicate management's vision or intentions regarding the "big picture" of what they are going to do with the company. Shareholders for the most part are reacting to the news and not the big picture of what this news really means. I believe it was a mistake for management not to make the effort to communicate this vision in today's news release; perhaps they felt constrained from doing so for legal reasons.
The 1.2 million ounces of silver production is the beginning, not the end, of what management intends to accomplish with Silverstone. Silverstone can now focus on similar deals with other companies to buy silver production. The deals may follow the "Silver Wheaton model" of buying silver production. Or, these arrangements may divert from the Silver Wheaton model and include the direct purchase of producing silver mines. Either way, the silver production credited to the books of Silverstone will increase substantially, putting it into the same league as Endeavour Silver and First Majestic Silver. Let us welcome the next intermediate cap silver producer, a company currently sporting the price of a low cap silver company.