The next generation of top-tier silver miners are in the pipeline and will join the likes of Hecla (HL), Pan-American (PAAS) , etc. in terms of production output and of course profitability. This is the time to jump into these stocks as the companies listed below have "de-risked," making these picks safer than their peers.
- Bear Creek Mining-(BCEKF.PK) – Asset Portfolio are a located in Peru, the most lucrative silver mining country. One advanced mine (Santa Ana) set to commence production in 2012 which will provide cash flow to bring in their second relatively advanced world-class mine (Corani – one of the largest undeveloped silver mines).
- Fortuna Silver-(FVIF.PK) – Like Bear creek, has their flagship mine (San Jose) in Peru along with a mine currently in production in the second-richest silver country (Mexico).
- Alexco (AXU) – Set to bring online an extremely high quality mine at Keno Hill, which has enormous upside potential.
- First Majestic-(FRMSF.PK) – Despite the incredible run it has had the last two years, the upside still remains very lucrative. Although management had said there was no way it would let any peer take it over, it is for a very good reason - keeping First Majestic independent will unlock the most shareholder value. In fact, First Majestic will likely go on the offensive as its strong balance sheet and increasing operating cash flow gives them that luxury. They have done an incredible job executing various expansion projects; I continue to be bullish on it even though I first mentioned it under $3.50.
What makes Bear Creek's assets absolute gems are the incredibly high internal rates of return ( in excess of 70%). In other words, the capital requirements to construct these mining operations are very low, allowing Bear Creek to bring these mines on-line without having to do a ridiculous amount of financing. This is especially important to companies not yet generating operating cash flow. The following are some highlights of their projects.
1) Santa Ana – Expected to produce 5M ounces annually starting in 2012. The expected LOM is 12 years. But both these numbers are likely to increase in 2011 as they recently increase M&I resources by 39%.
- Initial Capital Outlays: $51 million
- Average Cash Costs: $7.40/oz.
- High exploration potential on the northern side
- 136M oz. in total resources
Corani – Expected to produce 25M silver equivalent ounces, which is a dramatic increase from the original estimate of 15-20M. An increased throughput of 22,500 is being evaluated, but the rhetoric from management has expressed this will be the likely outcome. There is also the possibility they attempt to extract 25,000 Tpd.
- Initial capital outlay: $ 400M
- Cash Costs net of bi-products: $1.07/oz.
- Gross cash costs: $4.09/oz.
- 470M Proven and Probable Reserves
- Mine life: 27 years – @ 22,500 Tpd – 20 years
Bear Creek has all the qualities one would want in a silver miner, including a great internal exploration program, one of which has already showed great potential.
This South America focused silver producer has already brought one mine online, generating cash flow to help fund bringing their flagship (San Jose) online. This story is unique in the fact production will continue to increase up until San Jose commences production, giving investors exposure to rising silver prices with a great production growth profile, both short and medium term.
- San Jose Project – Set to commence production in the latter half of 2011, with everything currently on schedule. Management is three years ahead of schedule with regard to the mill throughput. By the end of 2011, management plans to have a mill throughput of approximately 1,000 tpd, a 25% increase from the original plans. Production will increase from 1.6M oz. in 2009 to 3.2M in 2012 and 5M ounces by 2015. These estimates, in my opinion, will prove to be overly conservative given the exploration upside.
- Caylloma – This is a perfect example of the high potential of production upside as they have struck a vein at Don Luis II. While the drilling showed areas of extremely high grade silver, they were fairly narrow, this will likely add a few hundred thousand ounces of long term output.
I expect Fortuna to become a 6-8M ounce producer excluding acquisitions. If silver prices continue to rise, it would make sense to increase mill throughput at San Jose to 2,000+ tpd.
Home of the Keno Hill. Initial Production will be rather small, but incredible upside throughout the Keno Hill District makes Alexco a compelling story. Their first producing mine, Bellekeno, will come into production in early 2011, while completion and commissioning are only 6 or so weeks away.
- Bellekeno Mine – Currently expected to produce 3.5-4M ounces for 2011 and 2012. Excellent drilling results continue to come out, which likely means resource/reserve and production expansion will be the end result.
- Silver King, Lucky King, Onek – These operations will drive the long term growth for Alexco, all of which have returned favorable drilling results.
Alexco, at its current valuation, is still very attractive given its near term production, high quality pipeline and vast exploration potential
Great Panther (GPRLF.PK)
A great valuation story here, although many were lucky enough to grab it in the 50, 60s and 70s. It is also a great story as most miners take 10+ years to bring production online, while they have managed to do it in 6. Mines include Guanajuato (silver-gold) and Topia, both located in Mexico.
- Organic Growth Profile: 2009 - 2.2M ounces. 2012 - 3.85M ounces and over 4M ounces in 2013
- Cash Cost - $6/oz.
Along with a great valuation has been a great drilling result, which so far looks like it will lead to one or two expansion projects and total output.
Some of the following is taken from a previous article. The following is a brief description of thier operations.
- La Encantada silver mine is their highest-grade mine, which lies on a 7,000 acre property. As if often the case, La Encantada also possesses the lowest cash costs of those in operation. To maximize peak production levels, a $21M expansion project will soon enable 4-5M ounces of production per annum. The reserve base is currently around 90M ounces, making this a 20+ year mine.
- The La Parilla Mine has surpassed investors' expectations since it was acquired, at least in regard to the actual size. As the surrounding claims cover over 100,000 acres, there are numerous targets for near- and long-term exploration and development. Due to the size of this mine and the surrounding claims, it has taken some time to commence production as operational improvements, mill expansion and modernizations have been ongoing for the last five years. In the process, a rather significant mining area in Las Vacas has been under development and is set to begin production in the coming year. Though nearly 88 million ounces of reserves and resources have been discovered, peak production levels remain a question. With the addition of production from Las Vacas, it wouldn’t be unreasonable to estimate peak production levels between 5-8M ounces per annum.
The San Martine silver mine, which still has approximately 64 million of reserves remaining (which is significant given the fact it has been in operation since 1983), is expected to produce between 1-2M+ oz. per annum after the expansion project is complete.
Advanced Stage Projects:
Aside from the previously mentioned ramp up in production of its core mining assets, First Majestic’s growth spurt can also be contributed to new operations being brought online. The Del Toro silver mine will commence initial production early in 2010 and is expected to produce 1M in approximately 3 quarters of operations.
Despite cash costs in excess of $8 per ounce in La Parilla and San Martine, La Encantada costs bring down the average rather significantly, from over $7/oz. in 2007, $5.50/oz. in 2008 and around $5/oz. in the current fiscal year. Though costs for the Del Toro mine will likely be near $10/oz. for the coming year, as well as La Parilla (the initial and ramp up stages can be costly), this should not be indicative of their overall operating efficiency as it will likely retreat back to between $5-6 per ounce in 2011. First Majestic will see production growth increase 3-5 fold over the period from 2008-2013, with the added bonus of being able to fund future growth organically through their numerous mine claims in La Parilla.
Out of the aformentioned silver miners, Bear Creek looks like the front runner to become the next 20m+ oz producer in the 3-5 year period, with First Majestic hot on its tail.
Disclosure: Long: FRMSF.PK, FVITF.PK, BCEKF.PK, AXU