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Silver Lake Recources Is An Opportunity For Brave Investors

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  • Silver Lake is operationally strong and carries no debt.
  • Silver Lake fell victim to the gold sell-off but has not recoverd in line with the recent gold surge.
  • Silver Lake opens an opportunity in the gold sector.

The stock market is not always rational. On the contrary: it is rarely rational. The Market is highly emotional, euphoric, depressed. But that opens up opportunities - if you have your emotions under control.

Current example: the gold sector. In the summer, gold stocks climbed from one high to the next, driven by an emerging euphoria about the gold price, only to sink into a deep depression a few months later. There are currently many gold stocks on sale, although the gold price is approaching the $ 2,000 mark again. An example: the Australian gold producer Silver Lake Resources(OTCPK:SVLKF).

Facts, Facts, Facts

First a few numbers. They are known to be free of emotions: Silver Lake Resources produces around 250,000 ounces of gold per year, has 303 million Australian dollars in cash and no debt. On the stock exchange, Silver Lake is worth 1.8 billion Australian dollars, or around 1.5 billion Australian dollars after deducting cash. And that corresponds to just 1.2 billion United States dollars. Cheap, far too cheap. Something must be wrong here. Or not?

Silver Lake Resources has two producing mines: Mount Monger and Deflector. Mount Monger was the slightly larger mine compared to Deflector at 27,684 ounces, producing 34,578 ounces in the first quarter of the fiscal year (September quarter). Both projects are in the west of Australia. The costs (all-in sustaining) are around 1,400 Australian dollars per ounce, the price of gold in Australian dollars is over 2,400. This results in a margin of around 1,000 Australian dollars. So Silver Lake is a cash machine at this level. That was also evident in the past quarter, when Silver Lake was able to increase its cash position by a further 13 percent or 34 million despite exploration expenditures of 26.4 million Australian dollars.

So what's the catch? Do you have to fear that a mine or even both mines will soon be nearing the end of their life and production will fall?

Mount Monger has a 2.2 million ounce resource in the measured and indicated category and an additional 1.4 million ounces in the inferred category. Deflector is 1.1 million ounces in the measured and indicated category and 700,000 ounces in the inferred category. In other words: Mine life is beyond five years and is therefore nothing to be worried about. 

And what's next? The exploration budget at Silver Lake Resources flows primarily into the two mines that are already producing. It is about extending the mine life and also further increasing production. Silver Lake has two other projects: Andy Well, a formerly producing mine that still has a resource of 500,000 ounces of gold, and Gnaweeda, a project that is only 15 kilometers away from Andy Well and currently has 322,000 ounces of gold and in addition still has some exploration potential. Will this be Silver Lake's next mine?

You can't rule that out

Silver Lakes Mining Operation

However, with more than 300 million Australian dollars in cash and no debt, Silver Lake is in the comfortable position of being actively involved in industry consolidation. In other words: now that the Doray takeover has been digested and Deflector has been integrated into Silver Lake, the company could soon look again towards takeovers or mergers.

Or the group itself becomes a target. A highly profitable gold producer without debts arouses desires. And you won't find a catch in the story.

Victim of sentiment

Operationally, Silver Lake Resources is doing very well. However, the stock fell victim to the currently extremely negative sentiment in the gold sector. For brave investors, however, such irrational phases mean an opportunity. Buy!


Analyst's Disclosure: I am/we are long SFLKV.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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