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Apogee Silver: An Undervalued Junior With Giant Silver Resources

|About:Coeur Mining, Inc. (CDE) Includes:Fortuna Silver Mines (FSM)

With silver outperforming all major equity indices on both supply fundamentals and the news of continued global money printing and inflationary debt monetization efforts, Mitchell Krebs, CEO of U.S. based silver producer, Coeur d'Alene Mines Corp (NYSE:CDE) announced Coeur's willingness to make near-term acquisitions of junior companies for up to $250 million as part of their growth strategy during an interview at this year's Denver Gold Forum.

The acquisition targets would be generally limited to companies that own high quality silver deposits in close proximity to Coeur's existing operations and those which can produce 3 to 4 million ounces per year. On such company is Apogee Silver Ltd (APE) (AGEEF:US), which Coeur already holds a significant ownership stake in, is already an interesting candidate for several reasons.

Apogee's flagship deposit, Pulacayo, contains 29.34 million ounces of silver in the measured and indicated category with high grades seen above 150 grams per tonne and is located in same district as Coeur d' Alene's San Bartolome mine in Southwest Bolivia that generates 6 to 8 million ounces - or approximately 25% - of Coeur's annual production. It is notable that Coeur openly considers its neighbor, Apogee, a strategic investment within their corporate presentations. They are not alone as the company is also backed by Sprott Asset Management, Pinetree Capital and the China Mining United Fund.

In late 2011, Apogee began their transition from explorer to producer and has focused on building their initial stockpiles through custom milling with permit rights to the processing of 200 tonnes per day. The first bulk sample from Pulacayo confirmed a solid silver recovery rate of 86% and the company expects to benefit from early revenues through their custom milling program. An independent feasibility study was contracted for the project in May 2012 and will examine the options for large-scale mine expansion into 2013 and will position the Pulacayo mine to produce a staggering 7 to 8 million ounce per year by 2015 at low cash costs. This would amount to approximately 25% of Coeur's current annual production. Not bad for a junior with current market cap of $35 million.

Miners with comparable resources, such as Fortuna Silver (NYSE:FSM), are trading at 10x to 20x multiples of Apogee because of the perceived country risk in Bolivia. Like Coeur, Apogee is established and has the support of COMIBOL and local cooperatives that will benefit through long-term partnerships as seen in Coeur's past and current production at San Bartolome. It can be argued that fears towards political risk have actually de-risked the price per share of some companies and are now significantly undervalued.

When the industry takes note of silver's surge along with Apogee's early revenues and feasibility study due the by end of 2012, Apogee's fair market value should be realized in short order and Coeur d' Alene's growth strategy may develop sooner rather than later.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long AGEEF

Stocks: FSM, CDE