RE:RE:Seeking Alpha articlePikKid,
The two major deals in the silver space last fall were Great Panther Silver’s acquisition of Beadell Resources Tucano mine in Brazil and Americas Silver’s acquisition of Pershing Gold. Prior to this acquisition Great Panther was the 3
rd most expensive silver stock in terms of market capitalization per ounce of gold equivalent production, while Americas Silver was the 3
rd cheapest silver stock in terms of that same metric. Following the respective acquisitions the two miners have flipped positions with Americas Silver going from $8000 USD in market cap per ounce of quarterly gold production to $16,930 USD per ounce of quarterly gold equivalent production with the number of shares outstanding doubling while the benefit of Relief Canyon gold production is still at least 3 quarters away.
In contrast, Great Panther’s acquisition of the Tucano mine added 100 million shares to the stock float, but also added 150,000 ounces per year of current gold production from a 10,000 tpd plant with CIL in Brazil to Great Panther’s two operating mines in Mexico producing about 50,000 ounces per year gold equivalent. The GPL valuation went from $16,125 USD per ounce of gold equivalent production before the merger to $6,800 USD per ounce of gold equivalent production (pro forma).
So now, GPL is the third cheapest silver stock behind Avino (ASM) and Sierra Metals (SMTS), and USAS is the third most expensive silver stock behind First Majestic (AG) and Excellon Resources (EXLLF) in terms of current market valuation. Americas Silver shareholders will get price appreciation next year when Relief Canyon goes into production and doubles USAS gold equivalent production to 150,000 ounces per year. GPL investors get the benefit of increased gold production this year starting this quarter. So for new money coming into the market, GPL is the better investment.
That seems to be the verdict of the market as well, because GPL shares have appreciated from a low of 28 percent of USAS share price last October to 50 percent of USAS share price as of the market close on Friday.
So let’s compare Reliief Canyon with Tucano:
- Land Package Relief Canyon 117 km2, Tucano 2,500 km2
- Ore Throughput rate: Relief Canyon 16,500 tpd, Tucano 10,000 tpd
- Gold head grade: Relief Canyon 0.62 g/t, Tucano open pit 1.6 g/t + 3.4 g/t underground
- Strip ratio on open pit: Relief Canyon 4.4, Tucano 5.5
- Annual gold production: Relief Canyon 79-80k oz, Tucano 150k oz
- All In Sustaining Cost: Relief Canyon $830 USD/oz, Tucano $1100 USD/oz
- Annual profit: Relief Canyon $30 million USD, $30 million USD
- Mine life Relief Canyon 6 yrs, Tucano 10 yr +
Americas Silver/Pershing Gold’s heap leach mine is in a mining friendly jurisdiction in Nevada, but Tucano is also in a mining friendly jurisdiction. Nevada mountains are snow covered from November through April, so heap leach recoveries may be adversely affected during the winter season, but Tucano being on the equator has the opposite problem of a 6 month rainy season which affects open pit ore.
So I think that both GPL and USAS will be repriced by the market with GPL getting repriced this year and USAS getting repriced next year, unless Americas Silver makes another acquisition which the market likes. And this brings me to the question of why has Blasutti raised a total of $50 million USD in cash when he only needed $25 million USD to put Relief Canyon back into production? That is the big questio!
Holding USAS stock, Sandstorm gets the triple benefit of 5900 ounces of gold per year from Relief Canyon delivered for free, a 4 percent stream on gold production after the first 5 years, plus a significant share ownership in USAS stock. Could it be that Americas Silver plans to go after Scorpio Gold’s Mineral Ridge mine in Nevada?
Scorpio Gold’s heap leach tailings reprocessing project at the Mineral Ridge mine in Nevada requires about $25 million to construct a CIL plant at Mineral Ridge. That project could add 25k oz/yr of gold production but it takes a year to build the plant, but the increased gold production would not happen until 2020. So the question is whether there is another Tucano like acquisition that Americas Silver could make that would result in USAS becoming more competitive with Great Pahther???
Stay tuned! Things are happening IMHO.