Contributor since: 2009
Company: Stone Investment Group
Juanicipio will produce in excess of 16m oz. Ag when in production and operating at design capacity.
Seabridge obviously will never be able to build the mine given the CAP-EX required. The preliminary feasibility back in may 2012 has cap-ex at 5.3B but even back then 400-800m in over runs would drive cap-ex toward $6b. over 2 years later, its easily increased to $8-$9b inclusive of over-runs and by the time construction actually starts, it will easily be over $10b to build the mine. Cash costs in the study were about $600/oz, so the real cost i.e Extraction, Processing, Labor, G&A, interest (if any), royalties, taxes (often not counted but a cost of doing business) and sustaining capital would make AISC somewhere in the neighborhood of $900-$1,050. Cash costs have been rising at a furious pace as have capital costs, so today it would probably be $1,250-$1,400 and by the time it gets up and running ( I would guess 6-10 years), costs will have rise to $1,700-$1,900/oz. There are so many other quality projects out there without absurd capital costs.
exactly, thats why im still shocked when you mention a companies capital structure to someone, notably share structure, i never get a look of amazement. Even with 1 position i have which has just 29m share out. some people go in so far to ask if a company's cheap [esp in penny stock]. Someone who asks such a question should pay someone to manage their money.
Why are you comparing or even mentioning EPS for that matter instead of OCF/share? While DD&A could be considered a cost by some, then all cap-ex acquiring streams needs to be added back, otherwise its double counting. Now, its just serves as a tax shield for SLW. But even if I were to agree that DD&A is a cost, why is there no "write up" on assets suck as San Dimas? the stream was acquired for less than $200m and starting this year, will provide attributable production of 6.2-6.4m and likely 7m oz. after the phase II expansion in 2017 +/-.
Interesting you say that because in first estimate of Q1 GDP (which is a BS number anyway), real retail sales contracted, the housing market slowed, durable goods orders slowed, the unemployment rate fell again (but so did the labor participation rate), 800K+ jobs were lost in April yet personal savings rate was flat. This is the first of 3 quarters marking the start of another recession, although personally my cost of living has been rising roughly 6-9% annually from 2008-present to now, meaning there hasn't been any recovery in the US economy when measured in real terms.
If you look at Salobo's current 2p gold reserves, using 60k oz. per annum, you get something like 60-65 years or so. I haven't done the math yet but if you include dilution its still between 45-50+ years. There also remains significant upside in exploration potential. Mr. Smallwood likely wouldn't agree because he'll want to stay on the conservative side but I think he has said Salobo could double capacity from 24mtpy and then increase capacity further.
Here is some food for thought on how a stream should/could be valued. For example, If I wanted to buy a silver or gold futures contract, I would pay more for the longer dated expiration i.e Dec 2014 vs Dec 2017. So what's to say a stream shouldn't be valued the same, whereby instead of discounting, why not give each cash flow a small time premium. So using ($1,350 Au-$400) x 60,000 = $57m would be the gross revenue in the first year when producing 60k oz. But if you assume a 2.5% time premium 5 years later and the same production ($1527-$420) x 60,000 = $66,420,000. If you add in your above 5% CAGR in the price deck, then you arrive at a larger number relative to when you assumed just a 5% cagr.
Personally, I just use a price deck but neither apply a discount over time nor a time premium, so an undiscounted cash flow. But because the market discounts cash flow, I like to buy when i can apply an 8-10% discount rate and a streaming company is either under or fairly valued.
Sudbury is a bit easier as it now has Totten ramping up and another mine reaching production next year I believe. It also has a history of out-performance but the guidance given for 50k attributable from 2016-until end of term by mgmt is likely the most accurate. I modeled Salobo providing attributable production of 72,000 to SLW in 2018, increasing to 90,000 in 2019 and 100,000 in 2020 and thereafter. I still think this will prove to be overly conservative by 2022-2023.
My view is that Vale has several reasons why they will expand the mine. First is more pressure on copper prices due to a supply glut. By 2020, mega copper mines will have come online with Oyu Tolgoi O/P + U/G, Cobre-Panama (now forecast to produce 15-20% more per annum per the feasibility study by Quantuum Minerals), Las Bambas (now that it has been sold) and a fairly large amount of smaller contributions from small and medium size mines. While this obviously sounds a reason for vale not to expand, it will incrementally decrease all in cost per oz. of copper mined at Salobo. Vale will also receive an additional $400m if throughput capacity is increased to 40mtpa by Jan 1, 2021. Doing this would also increase the value of silver wheaton shares in which Vale received 10m warrants ($65/strike) with a 10-year term. In other words, Vale could make a considerable amount.
good article. One thing most fail to point out is that typically streaming transactions are mutually beneficial. For example, base metal companies on average have received a 4-6x EBITDA multiple on its cash flow generation from byproduct gold and silver, while a company like SLW on average typically receives a 13-16x EBITDA multiple on the same amount of cash flow but given a premium because it is considered a primary silver/gold producer [though they don't actually produce]. In other words, the base metal miner actually generate more cash flow multiple from the upfront payment while SLW obtains a higher multiple than it pays for the stream.
On a side note: I;ve talked to Vale every several months and although nothing has been announced, the probability of another expansion of 50% is almost a guarantee. It may be done in 2 phases, although they have an incentive to do it in one as it will receive another payment from SLW.
Yes, they do. The put out a PEA 2 yrs ago or so, so I bet all in costs have increased but its still attractive. The timetable is still for heap leach processing to begin start of 2016 and produce roughly 1m oz. Ag & 6,500 oz. Au for 5 years.
My Apologies, I mean the Avino mine.
Why do you use EPS? not CFPS?. DD&A is a non-cash charge and it should be added to earnings. While isn't isn't always the when dealing with DD&A, SLW has a track record of buying streams on mines which either increase the initial mine life (or contract per the San Dimas stream) and/or increase production beyond initial design capacity (again San Dimas is a perfect example). Currently, SLW's DD&A has spiked and will continue to do so as SLW expenses the upfront payment it made for 777, Salobo, Sudbury. The latter 2 were part of the Vale Deal which SLW paid 1.9B for. In other words, if you go back 3-5 years and calculate net margins based on Gross Revenue, you will see it trend downwards, but that is actually beneficial as having a higher portion expensed as DD&A, reduced the effective tax rate (SLW pays so little tax but its beneficial nonetheless).
Also, what deal are you referring to? Constancia was the last deal and it's a primary copper mine. If you're referring to Toroparu, debatable on whether this is considered a stream. If the feasbility study isn't to SLW's liking or they are able to find more value with that money elsewhere, off the top of my head it'd only cost them between $2-$3m if they don't go ahead with it.
SLW increased its debt capacity when the crash began but to give them more financial flexibility for near term deals. First was the Keno Hill Stream. They did issue equity but this was for the Silverstone Acquisition. If they had engaged in an equity issuance without following up with a streaming acquisition I'd agree with you. The equity issuance was $250m and Silverstone to the best of knowledge was somewhere between $175-$200m
That is entirely incorrect. Yes, the market portrayed SLW in such a way, however, if price had remained stagnant in silver, they had the option to amend that debt agreement, increasing the maturity in exchange for quite a bit higher rate of interest. I read numerous articles at the time which said the same but they were using the spot price of silver. The problem here was that it was impossible to actually buy silver near that price. SLW couldh've also chosen to sell it on the futures exchange which were also significantly higher than spot. This was roughly 17-19% above spot.
"The last gold streaming deal they did is turning out to be a lead mine" - Over the past 3 years, roughly 51% of annual silver mine production comes from lead concentrates.
SLW, using the prevailing GSR and following the ramp up at Salobo, Sudbury, Constancia will be roughly 65-70%/30%-35% Silver vs. Gold. Franco is getting roughly 70% of revenue from gold and the rest from PGM's, Oil & Gas and just a few percent from other's. In terms of attributable gold, come 2016 or so:
Slw: 230k oz. Au
FNV: 280-290k oz. AuEq (including PGMs) and roughly 250-260k gold.
However, FNV: roughly 170k of the 250-260k oz. are from royalties OR Streams In Canada, meaning they can be taxed at the statutory rate or 66% of the 250-260k.
SLW: Roughly 125k oz of the 230k-235k or 53-54% can be taxed at the statutory rate.
In other words, SLW will generate close to what FNV will generate from gold in 2016. Yes, Franco has more attributable production but SLW gets a slight tax advantage but also will be able to incur more non-cash charges [DD&A] from its gold streams (due to Salobo, Sudbury and others] thereby providing a larger tax shield. Given SLW and FNV are fairly close relative to market capitalization's, comparing the two is nothing like the example you used.
While Solitario looks to be a solid pick, my favorite by a mile is Trevali. They are tje only primary zinc producer with at least 1 new mine set to reach production in each of the next two year + its already existing Santander operation. Additionally, with the start of Caribou and its 3k tpd mill early 2015, Trevali will also produce a significant amount of AgEq byproduct credits (silver & gold). I got in around 65c and its done quite well.
I appreciate the kind words Dan. I work in the industry, so ive been busier than ever. I work primarily with David Morgan as well as do some things with the Sprott guys, and that crowd. As far as silver companies go, First Majestic is still a core holding of mine as well but didn't add to it last year because I bought so much under, at and just over $2. That combined with the absurd increase in the royalty tax in Mexico just made me see better opportunities out there. My top 3 positions, most of which were all made in late 08-1H 2009 are still Silver Wheaton, Sandstorm Gold, then First Majestic. Aside from the mainstream crap like the two in this article, take a look at some smaller silver/gold miners. I really like the fundamentals zinc has through 2018 and in trying to find the best way to play it outside futures (which I do also but on foreign exchanges) , I came upon the only primary zinc producer. Looking further into it, the one mine it has up and running in Peru, its Santander mine, Trevali will produce on average between 650k-800k (depending on the area mined). But its next mine, which is fully funded to reach production in late q4-q1 2015, its the Caribou mine and mill (3k tpd). The silver grades at Caribou are roughly 85 g/t as well as 1 g/t Au. So on AgEq basis, the avg grade is 130-135 g/t. Assuming the base case scenario in which recoveries never rise above 70%, AgEq production will be roughly 3m oz./annum starting in 2016. (1.8-2.2m in 2015). Trevali the has several projects which have run on a pilot plant and just need another 4-5k tpd mill for the Halfmile and Stratmat mine in NB. It also has a past producing primary silver mine (avg grade 250-280 g/t) and a 500 tpd mill, expandable to at least 800 tpd. I;m sure you;ve heard of SantaCruz Silver, whose mgmt I know personally and has a lot of ties with First Majestic. Anyway it has 1 mine ramping up to capacity (by end of Q2), Rosario. It will only produce 1m-1.2m oz. Ag on average but a very low AISC/oz. It also has the San Felipe mines, which will be much bigger than Rosario and only require 23-25m in capital investment. In this case, the Devil is in the details. the majority of its current resource estimate is from what has proven to be the lowest grade vein (among the 7), so if you do back of the envelope calculations for a more realistic Ag grade on several of the other veins, the average Ag grade would be roughly 60-70% higher. There is more but just email me.
Nolan Waston let that slip at the CIBC conference it put on for all the royalty/streaming companies. Actually, he said AISC around $950. It's actually quite funny as he told story regarding when it acquired the Bachelor lake stream, it was expected by mgmt as a whole, that it would be one of its higher cost producers. Before declaring commercial production it is among its lowest.
I agree with you LOM forecast, however, I think 7 years is easily achievable if it were to run at or above nameplate capacity after the expansion to 1,200 tpd. Just looking at all the drill holes and how much more exploration potential remains, i bet the first resource estimate updated increases to at least 650k-750k Au and the followed resource estimate update in excess of 1m oz. Au.
Word is, for the quarter ended Dec 31. AISC was roughly $975, which when running at full capacity should push down all in costs to around $950 and by the time it is running at new design capacity following the 50% expansion ($4m), say Q4 2015 - 1h 2016, AISC could easily be below $900/oz. It's a shame Metanor has such a sloppy share structure.
The Vale deal was good and bad. SLW should have only bought the Salobo stream as Sudbury has a fixed term and little upside production potential. Salobo on the other hand, will undoubtedly engage in at least 1 expansion and more likely 2 after the current one is finished. I wouldn't be surprised to see SLW receiving as much as 140k oz. within the next 10 years or. At the very minimum, I suspect SLW will have attributable production of 90-100k Au before the end of the decade. The exploration upside at this property is huge. I think production from Salobo will easily be in excess of 40 yrs, but we shall see....
Silver Wheaton likely acquired so many of gold streams of late for two reasons, 1) It wanted to reduce the volatility in its stock price. 2) I don't think it could have found $2.6b to invest in silver streams (regardless of whether it is from primary base metal mines (roughly 60% +/- 5% of silver is produced as a byproduct) gold mines (roughly 30% +/- 5% of silver is produced from gold mines) or primary silver mines (only 10% +/- 2%)).
Personally, I think SLW should had paid more for 777 (maybe $650m-$700m) so that the reduction to 50% of the gold was eliminated and only acquired the Salobo stream. That would slightly reduce attributable gold production for SLW but also would have left with $375m-$400m more in capacity. The extra capacity would go a hell of a long way in this market.
I agree completely PM's rock. I am hardcore libertarian and anarcho-capitalist. I believe everyone owns their own body and whose business is it whether you want to drugs, prostitute yourself, etc. However, I believe in the non-aggression axiom, which I think you were getting at. That is there only needs to be one law, that is "do not agress against others"
When I say Ethical, i;m describing something that can be logically deduced. For example. if person A kills person B, that is unethical because the only thing they have the right to kill is themselves. Or in the case of stealing, back to non-agression axiom and stealing is an act of aggression. As for the punishment, in the case of murder, the person who murders another should be killed.
I agree with you completely on taxation, actually taxation of any kind. The income tax actually isn't legal (as i;m sure you are aware of). If you remember Irwin Schiff, he was able to prove it isn;t legal and only was thrown in jail after giving classes to many others. After all, taxation is theft. But even I thought taxation was ethical, these idiots in government are so dense, they can't even do it semi-efficiently. That is, make everything a consumption tax. But of course, the government has to waste as much money as possible paying these useless drones from the IRS a ton of money given how many of these pathetic humans they staff.
I use the word Ethical or Ethics because those are things that can be logically deduced. Too many people don't understand the difference between ethics and morals. Morals are entirely subjective but too often understood to mean something objective.
Fair enough. I;ve seen several corrupt cops, 2 in the San Francisco area and one in Spokane, 2 of which I recorded with my iphone and only one of them was fired. The problem I have with them is that they are not needed. There would be less violence if gun controls were more lax. The so called "wild wild west" wasn't wild at all and that's because of the obvious. Also, look what trying to fight "the war on drugs" has done, its only exacerbating things. It;s absolutely pathetic a cop would arrest or even ticket a victimless crime. It;s also pathetic that a cop would ticket or arrest someone "because its against the law" instead of whether they think it's ethically wrong. That truly takes a weak character. I know, at least, at one police station near where I went to college, the Sheriff was making $130,000/yr. and another average police officer was making $90,000. That is disgusting on its own, not even counting the absurd pensions they get. Personally, If I didn;t have any integrity, I would be a cop if I had no productive/marketable skills solely because its a cushy life without having to do much work.
The government nor the police have any vested interest in preventing an attack on the U.S. as it gives them the excuse to start another war, which is especially true today because they want to distract you from what is really going on and the dire straights the U.S economy is in. The police, generally speaking, do far more harm than good. They get a lot of power and are paid incredibly well considering the fact that any moron could take a handout job such as this. They should be required to have a masters degree or some form of accreditation that requires them to use their brain. Even then, the pay and benefits they get are absurd. They should be paid minimum wage along with every other government job. The U.S is broke 10x over so why would such an unproductive job pay so well when the US can't afford it.
" Silver Standard is the largest publicly traded silver company"? You obviously have no clue about mining as First Majestic, tahoe Resources, Hecla, Silver Wheaton, Pan American and numerous others are far bigger. Why do use basic cash costs? those are not representative whatsoever of the cost structure. Either calculate the all in costs yourself or use the AISC number usually provided by the company. Silver Standard just bought a gold mine from goldcorp so I would hardly call is a silver company anymore.
Your analysis of Silvercorp is laughable as it has missed guidance for years and years. I don't think you could have picked two worse silver companies.
I;ve heard the shareholders are in favor of the takeover. Osisko mgmt is wasting time by taking the to court saying GG broke a covenant it had from when Goldcorp bought a good chunk of Osisko and then sold it for a nice profit.
From all that I;ve gathered, I think the chance of inking a deal with Bear Creek on its Corani project withing 8 months +/- is high. Should this occur, Silver Wheaton would need to raise more capital via issuing something like 20-30m shares of equity if it wants to acquire another material size stream. Mr. Smallwood has said he would do this but not until a deal had already been lined up.
I talk with management every 4-6 weeks and have for sometime as well as seeing them at most every conference throughout the year. The big deal for 2014, at least from what I have gathered by talking to both management teams for a few years now, will (likely) be a 25% +/- 5% stream on Bear Creeks Corani Project. This would be an ideal fit into SLW's portfolio as "basic cash costs" per oz will be below $0/oz. for the first 5 years and under $4/oz. thereafter. As you know, selling a stream causes all in costs to rise, at least from where it would be otherwise, so given the low cost profile of the asset, acquiring say a 25% stream will not be a determining factor of whether the project is economical or not. In other words, Corani would fall on the lowest quartile on the cost curve. There is tremendous upside at Corani in terms of mine life and/or increasing capacity. Corani already has a whopping 260m oz. Ag of 2p reserves and >135m oz. of additional silver resource. Though this is just personal opinion, I think when all is said and done, Corani will sport a reserve base between 350m-450m oz Ag (meaning that the reserve base + all the oz. which have been mined). The current mine plan forecasts production of 13.4m oz. Ag for the first 5 years, followed by 8m oz. Ag for another 15-25. I have a feeling that SLW will only require an IRR of above 10%-15% at current spot prices given the long term fundamentals of silver as well as potential upside at Corani. So I will venture to guess that if a deal is struck, Silver Wheaton would make roughly a $300m payment, but spread out similar to Constancia in that SLW would make an upfront payment, then 2 more milestone payments as Bear Creek spends more than x and x+y on the project. Reason being is that the PEA for Corani states of $574m capital investment, which should really be looked at as $650-$700m. This will undoubtedly also involve SLW transferring its 14.4% stake in the company back to bear creek where it can be retired and reissued at some point in the future. At current prices, this would equate to $25-$30m. So assuming SLW makes an agreement for a 25% stream for $300m, Bear Creek will also have to raise somewhere around 350-$400m. The bright side to this is that in almost every instance ive witnessed, any smaller company which announces it will fund a material portion of its cap-ex with stream financing has run up the day of and continue to run for the 2 weeks following. Furthermore, Peru's government has stated and shown signs it wants to become more mining friendly and there is a reasonable chance Bear Creek gets Santa Ana back in 2014. That news combined with a streaming agreement being announced, could easily result in the stock running to $4-$5/share. Basic shares outstanding (net of SLW transferring its stake to BCM), will then be 80-82m shares outstanding. BCM could then issue 80m shares or so at $4/share, would raise $320m, bringing total capital available to $620m. At that point BCM could then obtain a credit facility between of roughly $50m.

I don't think there will too many early deposit financing's as one would think (as its definitely better than buying an equity stake) at least on the silver side because as you know, most primary silver and base metal mines (which can remain economic in all price environments with 25-100% of the silver streamed) are typically developed/operated by more established companies, which don't need the menial upfront financing. That't not to say, there aren't several out there, rather SLW will have to be careful in making these deals. I do think there are a lot more available on the gold side but Silver Wheaton has gotten to the point where gold will make up too big a portion of total revenue come 2016.
Lastly, I hope SLW doesn't convert any other asset in its ROFR portfolio regarding Rock Creek, Montanore because there are better assets out there which don't have the permitting issues these do. I don't think there is a chance in hell Sabina sells a stream on hackett river as costs Glencore incurs will be fully carried and be paid from Sabinas silver royalty.
the "A" wts, expiring late 2015
I talk with Sandstorm mgmt roughly once every two weeks since I began writing about them (not on SA) just after it IPO'd and early on in SA. I also see and either just shoot the shit with them and/or get a drink at most every resource show (since I usually have to be on a panel or at least be at our booth). I recently talked with them late last week and although they can;t give me specific information, they do have different reactions to any question I ask them and that has told me (for the most part) whats happening with current and/or streaming acquisitions currently being negotiated.
To your question, yes, I think Colossus will need an additional 25-40m +/-. Sandstorm "suggested" while it does expect the mine to inevitably reach production, the timeline has been pushed back. I don't see any chance of Serre Pelada reaching production this year and a more likely scenario would be to reach first gold production in Q2 or so. This also means that PGM production will more than likely either start late in Q4 2014-1H 2015.
I do expect Serra Pelada hosts in excess of 2m oz., but that number, at least in my opinion is fair. As you probably well know, several other areas such as the Elephante Zone is showing the potential for a good amount of exploration upside. Personally, for Sandstorm Gold, i'm modeling a 9-year mine life, with year 1 producing roughly 140-150k oz. as it will need time to ramp up. Based on all the information released by the company, when the mine is operating at initial design capacity, Im projecting 200-220k oz. Au, 25-33k oz. Platinum and 32-38k oz. Palladium. Assuming the mid-points of these forecasts are correct, Sandstorm would increase attributable production by 3,150 oz. Au and roughly 10k oz. Pt. The great thing on the platinum side, is the on-going cost/oz. of $200.
Due to the grade variability among other things, it isn't easy to compile a 43-101 for the property and the one that will be released, at least initially will only make up roughly 12-18 months of reserves/resources. The purpose of putting that out is to get a better understanding of what the average grades will be, but like I said there is significant grade variability.
Although Sandstorm has told me it would be interested in increasing its gold stream to 5-7.5% and elimination of the buy-back clauses, it has changed its tune, now saying that they see much more accretive deals in the market now and would only be willling to increase its gold stream/eliminate buy back clauses if were on extremely generous terms.
I have always tried to figure out Sandstorm;s next stream (excluding the Premier and Entree deal) with good accuracy and i think I have narrowed its next one down to 2 different streams, both of which would be very accretive and represent its next cornerstone asset and also taking the spotlight off Aurizona to some degree. I will say one is in South America and one is in Canada. I could obviously be wrong, but I can say with a good degree of certainty something is being negotiated, however, the time two companies spend negotiated streaming deals can vary greatly. Personally, I suspect Sandstorm to make 2 decent size deals, the first within 4 months, the next very close to or within 6 months following the April expiration of its warrants, boosting its capital position by $42m. I also think 1-2 of the following will be negotiated into a stream from NSR's it holds (Mt. Hamilton, PC or Coringa). Hope this was of any help.
Metanor must have been generating positive FCF in July or August at the latest because it can afford to concurrently initiate an exploration program. Anyway, from what I recall Sandstorm Gold only owns 1m shares of Mutiny, 1m shares of Magellan and 17.86m shares of Entree.