Introduction
We have been in a 14-month correction for the gold/silver bull market. During this period, many investors have lost interest in gold/silver miners, which has allowed several out-of-favor stocks to become oversold.
Many of them are so disliked that investors get angry just thinking about them. I plan to write articles about several of these stocks because investors are wondering if they could be turnaround stories, or if the risk is too high.
The intense pour sentiment could be creating a buying opportunity. Many will possibly laugh at some of my choices (I’m sure the comments below will not all be friendly for many of these stocks). Why? Because some of these stocks are unloved by many investors.
I’m a fan of mid-tier producers, and I think many that have crashed will be turnaround stories. However, not all of them will. You will need to be risk-averse with the goal of finding high alpha to bet on these potential turnaround stories.
As the saying goes, price fixes everything. That's not completely true. Some issues cannot be fixed with price. For instance, companies cannot buy permits, they cannot solve some metallurgical issues, and they cannot make an unsafe location safe.
Mid-tier producers have the potential to generate high FCF (free cash flow). For this reason, they are ideal turnaround candidates. Of course, certain events have to occur to create their turnaround. The first event is higher gold/silver prices. Often the second event is to alleviate a condition that caused them to crash.
For Great Panther Mining, their main issue is resolving their open-pit issues at Tucano and generating free cash flow.
Great Panther Mining
Stock Name | Symbol (US) | Type | Category | Share Price (US) | FD Shares | FD Mkt Cap (11/27/2021) |
Great Panther Mining | Gold | Mid-Tier Producer | $.26 | 468M | $123M |
Great Panther Mining is a mid-tier gold/silver producer in Brazil and Mexico. They have two small silver mines in Mexico (about 2 million oz., with $18 per oz. break-even costs) and one large gold mine in Brazil (Tucano). They used to be primarily a silver miner, but they acquired Beadell Resources in 2018 and are now primarily a gold miner.
Tucano produced 120,000 oz. of gold in 2020, with break-even costs of around $1,250 per oz. They have had issues in 2021, causing them to shut down mining twice to do remedial work on the open pit walls for safety concerns. This has caused their costs to explode. Plus, they needed to dilute shares. Subsequently, investors dumped the stock, and it has crashed 75%.
They are currently working on moving to other pits, with production resuming in December. Remedial work on UCS will not begin until mid-year. So, we don’t know how much they will produce at Tucano in 2022 or the expected costs.
This has created a lot of uncertainty. Tucano has seven open pits, and only one (UCS) has remedial issues. Hopefully, any future safety issues with their open pits are not significant. They plan to build an underground mine at Tucano to produce 40,000 to 50,000 oz annually. Once it is built, it will reduce their open-pit risk.
Their other mine is Coricancha, a gold/silver mine in Peru. It has a small resource of about 25 million oz. (AGEQ). They plan to resume production once silver prices rise. Production should add 2 to 3 million oz. of silver equivalent (including gold). This mine is currently adding very little valuation for their market cap. So, it could create strong leverage once back in production.
Their pipeline has improved. San Ignacio, Coricancha, Horicon, and Guadalupe Reyes are all excellent exploration projects. This could give them additional producing mines in the future. Also, Tucano is on 50,000 acres, with a lot of drill targets.
There is no doubt Great Panther currently has terrible sentiment. After all, it has crashed 75%. But I think they can be a rebound story as long as they can keep Tucano running. I do not underestimate their high risk. I expect them to survive in 2022, but if they are not generating significant FCF at some point in 2022, then they could get into financial trouble.
The key for Great Panther is obviously Tucano. They have to resolve their open-pit safety issues. Investors have shown a lack of patience, and that will only get worse if there is any more downtime.
Company Info
Cash: $39 million
Debt: $43 million
Current Gold Resources: 2 million oz. (1 gpt).
Current Silver Resources: 30 million oz. (170 gpt).
Estimated Future Gold Resources: 1.5 million oz.
Estimated Future Silver Resources: 20 million oz.
Current Silver Production: 2 million oz.
Estimated Future Silver Production: 2 million oz.
Current Gold Production: 90,000 oz.
Estimated Future Gold Production: 120,000 oz.
Current Silver All-in Costs (break-even): $20 per oz.
Current Gold All-in Costs (break-even): $1,500 per oz.
Current FCF Multiple: 9
Scorecard (1 to 10)
Properties/Projects: 7Costs/Grade/Economics: 6
People/Management: 6.5
Cash/Debt: 6.5
Location Risk: 7
Risk-Reward: 6.5
Upside Potential: 7.5
Production Growth Potential/Exploration: 6.5
Overall Rating: 6.5
Strengths/Positives
Good location (Tucano)
Significant upside potential.
Exploration potential.
Risks/Red Flags
Management needs to execute better.
Potential ongoing safety issues with open pits.
Current high costs.
Valuation ($2500 gold prices)
Production estimate for the long term: 160,000 oz. (AUEQ)
Cash Costs (conservative): $850 per oz.
All-In Costs (break-even): $450 per oz.
160,000 oz. x ($2,500 - $1,300) = $192 million annual FCF (free cash flow).
$192 million x 8 (multiplier) = $1.5 billion
Current FD market cap: $123 million
Upside potential: 1,100%
Investment Thesis
The risk level is high because of the Tucano open-pit issues. However, the upside potential is huge if they get resolved. Once they build the underground mine at Tucano, it will give them protection again more downtime from open-pit issues. I do not know the capex or timeline for when they plan to build the underground mine.