Mine Site UK - Winning Strategyhttps://www.minesite.com/nc/minews/singlenews/article/buy-low-and-sell-high-silverstone-resources-builds-on-a-winning-strategy-although-its-shares-are-i/1.html
August 27, 2008
Buy Low And Sell High: Silverstone Resources Builds On A Winning Strategy, Although Its Shares Are In Need Of Some Support
By our Canadian Correspondent
Darren Pylot and his team at Canadian-listed Silverstone Resources have done such a stellar job increasing cash flow over the past 12 months that, believe it or not, the current dearth of capital available to small miners may actually turn out to be a blessing in disguise for the company.
Silverstone has a unique mandate. It’s a company that aims to generate cash flow through the purchase of silver by-product streams from existing operations while increasing its own resource base on the exploration front. From any given base metal operation the contribution from silver usually comes in at less than 15 per cent of the gross revenue, and companies looking for cash to cover production costs will often choose to sell the by-product silver to bring in early cash. With construction cost overruns the rule rather than the exception these days and with financing alternatives all but dried up, Silverstone may find itself in the enviable position of being able to gobble up more royalties on the cheap.
So far, the company has a ten-year silver purchase contract with the Cozamin mine in Mexico, as well as life-of-mine agreements with Lundin Mining for 100 per cent of payable silver from the Neves-Corvo and Aljustrel mines in Portugal. These royalties helped Silverstone table profits of US$3.7 million or US$0.03 per share in the second quarter to the end of June, with cash flows hitting US$3.8 million. Sales rang in at 459,000 ounces of silver generating sales of US$8.3 million. Total cash costs remained stable at US$3.97 per ounce. And across the first six months of the year, Silverstone earned US$8.2 million or US$0.07 per share.
The growing earnings profile looks solid, with Neves-Corvo expected to produce 630,000 ounces of silver in 2008, increasing to 800,000 ounces in 2009. Meanwhile, Aljustrel is expected to produce 225,000 ounces in 2008, increasing 1.2 million ounces by 2010. Neves-Corvo holds proven and probable reserves of 39.8 million ounces of silver and measured and indicated resources of 89.4 million ounces. For its part, Aljustrel has proven and probable reserves of 29.7 million ounces of silver and measured and indicated resources of 50 million ounces. In other words the royalty stream is safe for many years to come. In return for this bumper silver crop, Silverstone paid Lundin Mining US$42.5 million in cash and issued 15.4 million shares and 4.3 million special warrants, convertible into common shares at no additional consideration. Silverstone also has to make on-going per ounce payments of US$3.90.
Over at Capstone Mining’s Cozamin operation, silver production is expected to hit 1.3 million in 2008, rising 1.5 million ounces by 2009. Silverstone picked up the right to purchase the silver by paying cash and shares, plus paying an average price of US$3.92 per ounce of silver. As a result, Capstone Mining owns about 22 per cent of Silverstone.
All-in-all, Silverstone is slated to sell more than two million ounces of silver in 2008, and over three million ounces in 2009. Looking ahead at further growth, Silverstone has the right to purchase 12.5 per cent of the life-of-mine of payable silver from the Loma de la Plata zone on Aquiline Resources’ Navidad project in Argentina. It also has the right of first offer with respect to the sale of any additional future silver production streams by Aquiline. This could prove to be a real money maker, as Navidad hosts an indicated resource of 9.1 million tonnes grading 225 grams silver, giving 66 million contained ounces of silver, plus an inferred resource of 17.3 million tonnes grading 159 grams silver, and giving a further 89 million contained ounces of silver.
Meanwhile on the exploration front, a new resource estimate for Silverstone’s Copala project in Mexico’s Sinaloa state shows nearly 16 million silver equivalent ounces. At the underground Animas Refugio vein, the indicated resource tallies 656,000 tonnes running 204 grams silver and 1.1 grams gold per tonne, while the inferred resource comes in at 345,000 tonnes grading 145 grams silver and 0.8 grams gold per tonne. At the surface the La Colorada vein-mantos hold an inferred resource of 2.5 million tonnes grading 80 grams silver and 0.4 grams gold per tonne. Importantly, there are more than seven other known vein and manto systems on the property to be evaluated.
Despite the rosy outlook for Silverstone, shares in the company have been affected by the current market malaise and are trading near 52 week lows. In response to this, Silverstone announced plans to buy back up to 9.86 million shares over the next 12 months. This would modestly boost the bottom line, although rest assured Silverstone also has its tentacles out looking for more silver royalty streams as the company seeks to build on a winning strategy of buying low and selling high.