The case for investing in junior silver stocks is as strong as it’s been since the 2008 Global Financial Crisis thanks to a confluence of factors positioning explorers for outsized long-term returns. These include:
- The expectation that silver demand will increase by as much as 170% by 2030 thanks to its essential roles in solar panels and EV battery conductivity, on top of its use-cases across jewelry, industry and investment.
- Mine supply having been approximately flat over the past decade and decreasing, according to a recent report from Sprott.
- High post-COVID inflation and fiat currency devaluation due to outsized government aid and central bank quantitative easing.
- The price of silver has gained about 100% since March 2020 to over US$30 per ounce in response to these catalysts.
- Market-wide pessimism among junior silver miners because of their pre-revenue nature and the temporarily high yields available through bonds and cash, with the mining sub-sector down by more than 50% since 2020 on an enterprise value/measured and indicated resource basis, according to data from RBC Capital Markets as of May 2024.
This environment has opened a window for investors to identify high-quality junior silver stocks trading well below where their assets and operational track records dictate they should.
A world-class silver portfolio in Bolivia
A small-cap stock trading at a steep discount to its intrinsic value is New Pacific Metals (TSX:NUAG/NYSE:NEWP), market capitalization C$352 million, a Canadian exploration and development company advancing two silver projects in Bolivia – collectively representing almost US$25 billion in the ground – each of which holds the potential for significant shareholder value creation, supported by:
- Bolivia’s entrenched mining culture, with mining representing more than 20% of exports according to the Bolivian National Institute of Statistics, and the country ranking as the sixth-largest silver producer in 2022 according to the U.S. Geological Survey.
- The portfolio’s similar geology to Bolivia’s approximately 3 billion-ounce Cerro Rico silver deposit, which has been in operation since 1545.
- A management team steeped in mining finance, legislation and project management expertise from exploration to production.
- New Pacific Metals stock having given back 13.10% since 2019, well behind silver’s more than 100% return, despite establishing the value of its projects through robust drilling and project studies since 2017, positioning investors for multi-bagger returns.
Let’s run through a detailed account of the company’s flagship project to better understand the mismatch between its intrinsic value and market perception.
The Silver Sand Project
New Pacific Metals’ 100% owned Silver Sand Project in Potosi, Bolivia, only about 35 km northeast of the Cerro Rico deposit, has the potential to be developed into one of the world’s largest pure silver mines.
The company’s most recent step forward in Silver Sand’s development is its 2024 pre-feasibility study (PFS), which, consistent with the 2023 PEA, details a post-tax net present value (5%) of US$740 million at US$24 per ounce of silver – an over 22% discount to the price of US$30.89 per ounce as of July 11, 2024 – and 157 million ounces of silver production over a 13-year mine life, generating cumulative post-tax net cash flow of US$1.16 billion, enabled by:
- Low all-in sustaining costs of only US$10.69 per ounce of silver driven by strong grades for a large-scale, open pit operation.
- Modest initial capital costs of US$358 million and a post-tax payback of 1.9 years from the start of production at US$24 per ounce of silver because of a high-grade, near-surface starter pit.
- An expected average silver recovery rate of 90% over the life of mine.
Silver Sand’s value-accretive PFS has analysts confident in further developments to come. “Average annual silver production of 12 Moz positions Silver Sand as one of the top undeveloped silver projects in the world,” stated Felix Shafigullin, Analyst at Eight Capital, in his latest update following the release of the PFS results.
Next steps in terms of mine development include collaborating with local communities on a mutually beneficial surface rights agreement to build out the project. The agreement will allow the company to finalize and submit its environmental impact assessment study to Bolivia’s Ministry of Environment and Water.
New Pacific Metals also owns the Carangas and Silverstrike projects in Bolivia. Results from the preliminary economic assessment at Carangas are expected in the third quarter of this year, potentially adding a second viable silver development project in New Pacific’s portfolio. With US$23.5 million in cash and cash equivalents as of March 31, 2024, the company is well funded and positioned to advance its key projects.
Why New Pacific Metals exemplifies the appeal of junior mining stocks
Investing in junior mining companies often presents opportunities to capitalize on discrepancies between stock prices and their underlying companies’ intrinsic value. Often, as is the case with companies like New Pacific Metals, these discrepancies are so significant that they border on the absurd, rewarding the seasoned investor, well-versed in enduring long-term volatility along the more than 15-year journey from exploration to production, with multi-bagger potential rarely seen among extensively covered large-cap names.
The macroeconomic hangover over the past few years has caused the broader market to lose touch with reality, allowing New Pacific to trade at a market cap of C$352 million, which is four times less than Silver Sand’s post-tax NPV of US$1.1 billion at US$30 silver, meaning you can gain exposure to the project at a steep discount and to the rest of the company’s assets for free—noting that a maiden preliminary economic assessment for the Carangas project, New Pacific’s second major silver discovery, is expected by Q3 2024. This robust margin of safety is fortified by being debt free, holding US$23.5 million in cash as of Q1 2024, and a management team that has earned investors’ conviction through its seven-year track record of successful project identification, acquisition, drilling and technical evaluation.
New Pacific’s value proposition is further complemented by the guidance and expertise of its most prominent shareholders collectively owning 39% of the company, both of which have representation on the company’s board:
- Silvercorp Metals (TSX/NYSE:SVM), owner of a 27.4% stake, is a Canadian mining company with mines in China that has produced over 100 million ounces of silver and 1.3 billion pounds of lead and zinc across its more than 18-year history, including consistently turning a profit and growing its production profile.
- Pan American Silver (TSX:PAAS), owner of an 11.6% stake, is a premier silver company with a 30-year track record and 11 producing mines across the Americas, including a long-standing operation in Bolivia. The company generated 20.4 million ounces of silver and 882,900 ounces of gold in 2023, leaving a long growth runway ahead with reserves of 486.8 million ounces and 7.7 million ounces, respectively, as of June 2023.
With silver likely to continue its uptrend thanks to expected near-term rate cuts across the world, New Pacific stands out as an investment opportunity for investors seeking exposure to the silver market’s bullish outlook.
The company’s current market valuation starkly contrasts its quality asset portfolio and exploration potential. This disconnect between market perception and intrinsic value creates a rare chance for astute investors to acquire shares at a significant discount.
As the company advances its projects and bridges the valuation gap, patient investors could be handsomely rewarded over the long term, potentially achieving multi-bagger returns rarely seen in more mature mining stocks.
New Pacific Metals’ CEO Andrew Williams discusses Silver Sand & Carangas.
For more information about New Pacific Metals’ projects, please visit newpacificmetals.com.
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This is sponsored content issued on behalf of New Pacific Metals Corp., please see full disclaimer here.
(Top photo of New Pacific Metals’ Silver Sand Project in Bolivia: New Pacific Metals)