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Golden Minerals just announced it is acquiring an exploration property - Santa Maria - in Chihuahua, Mexico.

In the same release the company announced exploration results from its other exploration property - Los Azules.

This aggressive exploration challenges my thesis that the Velardena Project will not generate cash-flow.

Investors looking for silver price optionality should still consider the stock, but now I am more confident in the company's near-term cash-flow potential at $20/oz. silver.

Golden Minerals (NYSEMKT:AUMN) just announced that it is purchasing an exploration project - Santa Maria - in Chihuahua, Mexico. The project is being purchased from private owners. It has been exploited on a small scale in the past and Golden Minerals' management is confident that it can contain an economically extractable deposit if it were mined commercially.

The company also announced strong exploration results for its Los Azules project, which is a late stage exploration project in Argentina. Management has been trying to find a partner for the project although it has been unsuccessful thus far.

The fact that management is pursuing another project - even if it is just a small one - challenges my July thesis. Recall that in that article I suggested that while management was restarting production at its flagship Velardena Project, this didn't guarantee that the company would be able to generate positive cash-flow. In fact I argued that based on past expenses the project would likely be cash-flow negative. The company's recent earnings results suggested that its costs are not as high as I thought, but that my concern was well-founded.

With this in mind, management must be confident in Velardena's cash-flow potential considering that it is going out and buying another project, especially one that has not been explored using modern techniques. This is going to divert capital away from other projects, and either this is a terrible move for a company that needs to preserve cash, or the company isn't one that needs to preserve cash. With this in mind I am tentatively more optimistic. I still think the primary impetus behind an investment in Golden Minerals is its silver-price optionality; however, if the company can generate enough near-term cash-flow to expand this clearly makes it that more compelling. But before investing money based on this latter idea, it would be wise to wait for some concrete numbers.

Disclosure: The author is long AUMN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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