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Summary

  • SilverCrest Mines reported lower production figures for the second quarter as the company is winding down its heap leaching open pit operation.
  • While this sounds bad it does not negate my bullish thesis, as the production decline is temporary, and a part of the transition to underground production.
  • The event was not anticipated in my latest article on SilverCrest Mines.

SilverCrest Mines (NYSEMKT:SVLC) announced its Q2 production figures, which came in well below the numbers reported the same period a year ago. Specifically the company reported that its gold production fell from 7,500 ounces to 4,000 ounces, and its silver production fell from 194,000 ounces to 173,000 ounces. The decline isn't bad news, as it reflects the fact that the company is in a transition period from open pit to underground mining at its Santa Elena Project. So rather than the decline being a reason for concern it should be seen as a reason for investors to take comfort in the fact that management is moving forward at Santa Elena according to plan.

The company's long term plans are intact. The current mine plan for Santa Elena is for 8 years of underground production of more than 50,000 gold equivalent ounces per year at relatively low costs. The company also plans on developing and financing its flagship silver project--La Joya--for which the company has produced a preliminary mine plan for a "starter pit" that should produce an average of 4 million silver equivalent ounces per year for 9 years. Investors should note that the La Joya resource is far larger than this, and that it will likely turn into a larger mine at some point in the future.

While I remain optimistic that SilverCrest will succeed, and while my last article on the company was bullish the prices of gold and silver haven't changed much since then, and yet the share price has risen by 15%. Since my investment thesis was based on management's ability to execute its long-term plan rather than a valuation gap (I argued that the company was fairly valued) I think investors who missed the stock in April should hold back for now and wait for a pullback.

Source: Update: SilverCrest Mines Reports Lower Production As Santa Elena Transitions To Underground Mining