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Silver is poised for years of gains and I believe speculation in this metal could be very profitable if timed well with a good company. Silver is not only a precious metal but also has many industrial applications and thus will always have demand. Right now silver is priced around $20.00 an ounce. Gold is priced around $1325 an ounce. That represents a 66.5 gold to silver price ratio. On its own it doesn't mean much but the historical ratio is 16 to 1. The respective prices of gold and silver have not seen this ratio in quite some time and a reversion is well overdue. In order for this to happen the price of gold must plummet while silver holds stagnant or silver must rise at a higher rate than gold in the next few years. The price of gold and silver have been on the rise in the past month and the bottom is likely in. As this bounce ensues, I think silver may be ready to breakout at a higher rate than gold. My readers know that I have been adamant in my suggestion to own physical assets in these metals. This is something I have harped on for years and will continue to do in the future. You should allocate a small portion to your diversified portfolio.

For those investors that cannot or will not buy physical assets, I have pointed to the ETFs that track the price of metals as a second line approach. I recommend primarily the Sprott Asset Physical Trust (PSLV) followed by the ETFS Silver Trust (SIVR) and then the iShares Silver Trust (SLV) for silver exposure second to physical coins and bullion. For those looking to the individual silver companies, I recommend Silver Wheaton (SLW). I think it is the safest bet in the sector given the unique business model that could provide good returns. But the greatest returns are not always had from the safe play. Thus the purpose of this article is to highlight a profitable silver company that could be set to roar higher off of increasing silver prices, Great Panther Silver Limited (GPL).

GPL is primarily a silver mining and exploration company. GPL's operational activities are currently focused on the mining of precious and base metals from its wholly owned properties in Mexico (figure 1). GPL is also pursuing acquisition opportunities throughout Latin America to add a third mine to its portfolio of properties. GPL has two primary mining properties, the Topia mine and Guanajuato mine. GPL also owns a development stage property, San Ignacio, which is approximately 20 kilometers from its Guanajuato processing plant, and an exploration stage property, Santa Rosa, which is located approximately 15 km northeast of Guanajuato. This company is taking action to expand in the long-term. On July 18, 2011, GPL announced the acquisition of four mining concessions in the Santa Rosa project. Last year, GPL also secured the purchase of the complete interest of certain surface rights on its wholly owned San Ignacio project in Guanajuato, Mexico, which will increase the company's revenue stream. In this article I will highlight the properties that GPL has and document why I think the stock has limited downside and a large potential imbalance in the risk/reward profile from the current price of $0.79 per share.

Figure 1. Location of Great Panther Silver's Operations, Mexico, as of July 2013


(Click to enlarge)

Guanajuato

The Guanajuato Mine Complex is GPL's premier mining operation. The property consists of 32 claims, totaling 2,621 hectares. The concessions are 100% owned by GPL's subsidiary, Minera Mexicana El Rosario, S.A. de C.V. The main claim block covers 4.2 km of the highly significant Veta Madre vein structure and is located on the Central Plateau of Mexico in the State of Guanajuato. The city of Guanajuato, where the mines are located, is roughly 380 km northwest of Mexico City. In 2012, silver and gold production totaled 1,004,331 oz and 10,350 oz respectively at the Guanajuato mine. Table 1 depicts production numbers for the last five years at Guanajuato.

Table 1. Great Panther Silver's Guanajuato Mining Complex Production Numbers, 2008-2012.

Production Category

2008

2009

2010

2011

2012

Tons ore milled (thousands)

155

139

144

169

174

Ore silver grade (g/t)

203

275

249

199

199

Ore gold grade (g/t)

1.4

1.8

1.6

1.5

2.0

Plant Silver Recovery (%)

83.7

82.6

88.4

88.5

90

Plant Gold Recovery (%)

78.6

86.4

88.7

90.3

92

Metal Production, (000's) (Ag Eq oz)x

1,122

1,541

1,434

1,410

1,625

Silver Production, (000's) (oz)

848

1,020

1,020

959.5

1,004

Gold Production (oz)

5,488

6,748

6,619

7,515

10,350

Cash Cost / Ag oz (US$)xx

10.13

4.68

6.61

8.15

7.47

x Metal Production is expressed in terms of silver equivalent ounces, (Ag Eq oz), the formula for which depends on the gold and silver metal prices used in each year and hence are only indicative.
xx Cash cost per ounce of silver is a non-IFRS measure used by the company to manage and evaluate operating performance at each of the company's mines. It comprises the cost of production, cost of concentrate transportation and the cost of smelter and refining charges, net of the credit from the sale


(Click to enlarge)

Topia Mine

The Topia Silver-Lead-Zinc property is located in the heart of the Topia Mining District in west-central Durango State, Mexico. The property consists of four discrete blocks of mineral exploitation concessions covering 6,438 hectares. The concessions are 100%-owned by Great Panther's Mexican subsidiary, Minera Mexicana El Rosario, S.A. de C.V. The Topia silver-gold-lead-zinc mines are small, narrow-vein, underground operations utilizing a modified cut-and-fill mining method known as "resuing". The ore is processed to produce separate high quality, precious metal-rich, lead and zinc concentrates. Silver production for 2012 totaled 555,710 oz. Table 2 shows the production history at Topia over the last 5 years.

Table 2. Great Panther Silver's Topia Mine Production Numbers, 2008-2012.

TOPIA

2008

2009

2010

2011

2012

Tons Ore Milled (000's)

35

30

38

47

56

Ore Silver Grade (g/t)

370

504

458

400

345

Plant Silver Recovery (%)

87.1

89.7

91.5

88.7

89.4

Metal Production, (000's) (Ag Eq oz)x

687

661

822

790

753

Silver Production, (000's) (oz)

366

437

515

536

556

Gold Production (oz)

812

403

597

500

574

Lead Production (tons)

876

871

1,092

941

962

Zinc Production (tons)

1,074

1,057

1,358

1,314

1,478

Cash Cost / Ag oz (US$)xx

10.52

7.76

9.06

16.06

21.42

x Metal production is expressed in terms of silver equivalent ounces, (Ag Eq oz), the formula for which depends on the gold, silver, lead and zinc metal prices used in each year and hence are only indicative.
xx Cash cost per ounce of silver is a non-IFRS measure used by GPL to manage and evaluate operating performance at each of GPL's mines. It comprises the cost of production, cost of concentrate transportation and the cost of smelter and refining charges, net of the credit from the sale of by-product metals

San Ignacio Project

The San Ignacio Project covers approximately four km of strike length on the La Luz vein system, which is parallel to, and five km west of the principal Veta Madre structure that hosts GPL's Guanajuato Mine Complex. Great Panther holds a 100% interest in the Property through its wholly owned Mexican subsidiary, Minera Mexicana El Rosario, S.A.de C.V. GPL began actively exploring the San Ignacio Project in 2010 and initiated a diamond drilling program in October 2010, discovering new silver-gold zones with the first drill hole. GPL released an updated Mineral resource estimate for the San Ignacio Project on May 9, 2012. This updated mineral Resource estimate at San Ignacio superseded the original estimate and the new Inferred mineral resource is estimated to contain 6,894,000 silver equivalent oz in 826,000 tons averaging 121g/t Ag and 2.28g/t Au. This updated estimate both fills in and expands the strike length of the mineralized zones to 650m. This estimate increases tonnage by 35%, the silver content by 29%, gold content by 51% and the silver equivalent oz by 53% over the previous estimate. It should be noted that this estimate used only four of the seven previously identified zones, leaving three zones to be more thoroughly tested at a later date.


(Click to enlarge)

In August 2012, the company announced it had signed a definitive agreement for the purchase of a 100% interest in certain surface rights at San Ignacio. A total of 19.4 hectares has been purchased, allowing sufficient space for access to and construction of a portal for the development of a ramp, for waste dumps and for auxiliary infrastructure. With the acquisition of the surface rights, the company proceeded with the application for the permits required for the underground development, and should be fully completed this quarter. Table 3 depicts in detail the resources at San Ignacio.

Table 3. Resources at Great Panther Silver's San Ignacio Project, as of May 2012*.

San Ignacio

Tonnage

Grade (grams/ton)

Contained koz**

Vein

kt^

AgEq^^

Au

Ag

AgEq^^

Au

Ag

Inferred

DIOS1

178

224

1.99

103

1,287

11.4

591

DIOS2

147

285

2.38

141

1,346

11.2

663

INT

330

309

2.71

144

3,274

28.8

1,526

MELL

171

180

1.68

77

987

9.3

425

Totals Inferred

826

260

2.28

121

6,894

60.7

3,205

* Notes:

1. company provided wireframes constructed to a minimum horizontal width of 1m.

2. Reported Inferred cut-off grade 125g/t Ag Eq.

3. Specific gravity of 2.63 based on 250 drill core samples captured by the wireframes.

4. Totals may not agree due to rounding.

5. Tonnages and grades in metric units.

6. Contained silver and gold in troy ounces.

7. Silver equivalence was based on a 60.8 to 1 ratio of gold to silver value.

** koz; kiliounces

^ kt; kilitons

^^AgEq; silver equivalent

El Horcon Project

The El Horcon Silver-Gold Project in Jalisco State is comprised of 17 contiguous mining concessions, covering 7,908 hectares and is located 60km northwest of the Guanajuato Mine Complex. GPL owns 100% interest in the project. El Horcon is a historic mining operation but the extent of past production is unknown. The property is located on the northwest trend of the prolific Guanajuato mining camp and hosts similar silver-gold mineralized epithermal veins to those observed at Great Panther's existing operations. El Horcon hosts nine known veins, with the Diamantillo vein traceable on surface for more than four kilometres. Several underground workings exist, the most extensive of which is the Diamantillo Tunnel.


(Click to enlarge)

Great Panther's sampling to date is consistent with these historic results. Preliminary metallurgical testing at the company's facilities in Guanajuato shows the El Horcon mineralization to be compatible with the existing mill feed. While further testing is required, it is anticipated that recoveries from El Horcon should be approximately 92% for gold and 80% for silver. From the company's initial geological appraisal, a shallow zone of silver-gold mineralization on the Diamantillo vein will be the focus of a six month phase one exploration program. Mapping and sampling of the property will commence immediately, to be followed by diamond drilling as soon as permits are acquired, with the aim of delineating a new mineral resource for the project. Once this is complete and an estimate is in, a decision can be made as to production. The location of the project is shown in figure 2.

Figure 2. Map Depicting Location of Great Panther Silver's El Horcon Project


(Click to enlarge)

Great Panther's Most Recent Quarterly Production at Record Highs

GPL reported a great quarterly increase in production recently. Operationally, compared to the comparable 2012 quarter, ore processed was up nearly 30% to 67,570 tons while metal production surged 22% to hit a record of over 680,000 silver equivalent oz (assumes the 60 to 1 gold to silver price ratio). Actual silver production increased 6% as well, coming in at nearly 397,000 oz. Gold was also produced in record amounts, up a whopping 70% to just under 4,000 oz. Robert Archer, President and CEO, had this to say about the quarterly production:

"We are pleased to report both record total metal production and gold production for the second quarter. Both Guanajuato and Topia rebounded from low grades in the first quarter of 2013 as a result of our ongoing focus on grade control. As we continue to concentrate on improving efficiencies at the operations, the current emphasis is on site cost reductions and maintaining strong grade control, in light of lower metal prices. Non-essential budget items have been cut, some capital expenditures have been cut or deferred, and corporate overheads have been lowered in order to conserve cash and maintain our favorable working capital position. Directors and senior management have participated in these cuts through voluntary salary deferrals. Overall, these cuts will result in lower administrative, exploration and corporate development expenditures in the second half."

Production Highlights in Q2

Second Quarter production at the Topia and Guanajuato Mines are shown in Tables 4 and 5.

Table 4. Second Quarter 2013 Production at Great Panther's Topia Mine Versus Second Quarter 2012 and First Quarter 2013.

Topia Q2 Operations Summary

Q2 2013

Q2 2012

Change

Q2 2013

Q1 2013

Change

Ore processed (tons milled)

14,652

11,992

22%

14,652

16,995

(14)%

Silver equivalent ounce production 1

213,287

196,658

8%

213,287

208,084

3%

Silver ounce production

160,276

148,439

8%

160,276

146,718

9%

Gold ounce production

153

140

9%

153

202

(24)%

Lead production (tons)

243

244

0%

243

286

(15)%

Zinc production (tons)

411

351

17%

411

449

(8)%

Silver grade (g/t)

376

424

(11)%

376

300

25%

Gold grade (g/t)

0.57

0.56

2%

0.57

0.65

(12)%

Silver recovery (%)

90.6%

90.7%

0%

90.6%

89.0%

2%

Gold recovery (%)

57.0%

64.3%

(11)%

57.0%

57.0%

0%

Total underground development (M)

2,254

2,623

(14)%

2,254

2,256

0%

Underground diamond drilling

481

591

(19)%

481

406

19

Table 5. Second Quarter 2013 Production at Great Panther's Guanajuato Mine Versus Second Quarter 2012 and First Quarter 2013.

Guanajuato Q2 Operations Summary

Q2 2013

Q2 2012

Change

Q2 2013

Q1 2013

Change

Ore processed (tons milled)

52,917

40,964

29%

52,917

52,545

1%

Silver equivalent ounce production 1

466,925

359,063

30%

466,925

399,417

17%

Silver ounce production

236,454

226,284

4%

236,454

222,906

6%

Gold ounce production

3,841

2,213

74%

3,841

2,942

31%

Silver grade (g/t)

159

189

(16)%

159

148

8%

Gold grade (g/t)

2.47

1.82

36%

2.47

1.93

28%

Silver recovery (%)

87.2%

91.1%

(4)%

87.2%

89.0%

(2)%

Gold recovery (%)

91.5%

92.3%

(1)%

91.5%

90.0%

2%

Total underground development

1,790

1,682

6%

1,790

1,867

(4)%

Underground diamond drilling

6,426

6,223

3%

6,426

7,134

(10)%

1 Silver equivalent ounces for 2013 were established in November 2012 using prices of US$28 per oz, US$1,680 per oz (60:1 ratio), US$0.85 per lb and US$0.85 per lb for silver, gold, lead & zinc, respectively, and applied to the recovered metal content of the concentrates that were produced by the two operations.

These numbers reflect a decent quarter. With first half production totaling 1,287,713 silver equivalent ounces, GPL is on track to meet its guidance of 2.4 to 2.5 million silver equivalent ounces for fiscal 2013. As gold and silver prices dropped significantly in the second quarter, GPL has heightened its focus on improving and strengthening the operational efficiency of its operations. Cash cost guidance is being reviewed and GPL will likely provide an update in the second quarter earnings release, expected in early August.

Conclusion; Great Risk/Reward Profile

It is likely that the bottom is in for gold and silver after the devastating sell-off. The stocks of miners such as GPL have been decimated. At this point, with many silver miners operating above the cost of silver, that is their costs exceed the sale price of silver, it is difficult to commit investment dollars. However, the price of silver has dropped dramatically while demand is ever increasing. A levered play on the price of silver that I recommend is investing in GPL, given that the risk/reward ratio is favorable. The stock could easily move 7%-10% higher with every 3% increase in silver. The stock saw those kinds of losses weekly as silver dropped over a four month period. The stock is 67% off its highs from 2012. Furthermore, the company actually is profitable (though Q2 earnings will likely suffer due to the low price of metals). The company is cutting costs and increasing production. With a rise in silver prices, the stock trading at $0.79 at the time of this writing is too low to ignore, in my opinion. I recommend it as a buy with limited downside given that a floor in silver prices has seemingly been found and production numbers are on the rise.

Source: Great Panther: Record Production And Rebounding Silver Prices Reveal A Great Risk-Reward Play