- SilverCrest announced that its drill results better defines its high grade silver and gold mineralization at its Santa Elena Project.
- This should give us more confidence in the mine plan released last year, and it improves the odds that the project will be more efficient than expected.
- I had not anticipated this in April, although it is certainly a positive development.
- The stock is 10% higher than my "buy" recommendation point, and metal prices are lower, so I wouldn't be surprised if we saw a larger pullback, which should be exploited.
- Sandstorm Gold shareholders will also be pleased, as the company owns a streaming agreement on the Santa Elena Project.
This underground drill program was successful in confirming previous resource model expectations with delineation of high grade zones in the initial stopes scheduled for production in 2014 and 2015. Valuable information was also provided from the program to better define reserves and first stope mine designs. This detailed in-fill information continues to improve our model and enhances tonnage and grade projections for production planning and budgeting.
In short this means that the company has greater certainty in the figures released last year--as I discussed in my April article--and that there is the potential for the project to outperform these projections, which means more production and more cash-flow.
This is excellent news and it confirms the quality of the Santa Elena Project as one that is going to generate cash-flow from low-cost silver and gold production for at least 8 years. To date--since the company transitioned to underground mining--production has exceeded management's predictions, and this data indicates that this outperformance can continue.
With this in mind, one can argue that the stock deserves to trade at a premium to the value of its assets. In April--when the stock traded at about $1.70/share, I argued the shares were "fairly" valued. Now the stock is trading about 10% higher while gold and silver prices have corrected, and this means that it would be prudent to wait for further weakness before taking a position unless you believe that the weakness in gold and silver prices has ended. I should also note that this is good news for Sandstorm Gold (NYSEMKT:SAND), which owns a stream on the Santa Elena Project: if Santa Elena can produce more gold Sandstorm benefits directly.