is acquiring the near production-ready Revenue-Virginius mine in Ouray, Colo., for US$4.5 million (US$4.5M), reported Echelon Capital Markets analyst Gabriel Gonzalez in an April 18 research note.
"Assuming production were to restart after Silver X completes a 12- to 18-month exploration and study program, we believe the Revenue-Virginius mine would beneficially accrete value operationally and valuation-wise by diversifying out of higher-risk Peru and Latin America," Gonzalez wrote.
Significant Potential Return
Echelon has a Speculative Buy rating and a CA$0.80 per share price target on Silver X, the current share price of which is about CA$0.30. The difference between these prices implies a compelling 105% return for investors.
The price target, Gonzalez explained, is "based on a fully diluted/financed [Nueva Recuperada] expansion preliminary economic assessment (PEA), which is estimated to take production to over 6,000,000 ounces of silver equivalent (6 Moz Ag eq) by 2026, without considering potential copper production which we believe could eventually be included in production and slightly increase our net asset value."
Convering the Cost
The US$4.5M cost to buy the Revenue-Virginius mine out of receivership equates to US$0.11 per ounce (US$0.11/oz) of Ag eq resources, noted Gonzalez. If Silver X pays in full on or before May 31, 2023, the total consideration would be US$3.5M, or US$0.08/oz Ag eq.
Gonzalez pointed out that for Silver X to be able to cover US$3.5M, let alone US$4.5M, it likely will need to raise part of the capital and/or sell or option one or more of its secondary assets, the Coriorrco, Las Antas, and Julian projects. This is because, the analyst noted, the silver producer's current capital is tied up with Nueva Recuperada, the flagship project, in Peru.
As for its financial status, Silver X had only US$1M in cash and cash equivalents and (US$10.6M) in working capital at the end of Q4/22. Because debt and lease obligations amounted to only US$2.3M, Gonzalez wrote, refinancing near-term liabilities is one way the company could raise capital.
"We estimate that Silver X can still pull ahead with positive cash flow and growing its cash balance provided that the timing of its trade payables and accrued liabilities can be appropriately matched and/or refinanced," added Gonzalez. "However, Q1/23 and Q2/23 operations will likely have to show directional improvements to secure such lending."
About the Asset
Revenue-Virginius is a past-producing polymetallic project with a total current resource, Measured & Indicated plus Inferred, of 40.6 Moz Ag eq at a grade, per Echelon's estimate, of about 1,044 grams per ton. Mineralization is hosted in narrow, 0.5–1 meter wide on average, veins.
A feasibility study of Revenue-Virginius prepared in 2021 shows the project to be attractive economically. The study outlines an operation producing 2.78 Moz of Ag eq per year over a 6.25-year mine life.
A restart of the project would require US$20M in capex, the study indicated. Once up and running, the all-in sustaining cost would be an estimated US$12.25/oz Ag eq, based on installed 260-ton-per-day mining/mill rates.
Also, the feasibility study assigns the Revenue-Virginius project a US$108.8M net present value discounted at 5% and a 175% internal rate of return. These figures were derived using a price of US$20.89/oz of payable silver.
Q4/22 Financial Results
In the fourth quarter of 2022, Silver X posted US$3.9M in revenue, which fell short of Echelon's forecasted US$5.3M. Adjusted EBITDA came in at (US$3.6M), also below Echelon's US$1.1M estimate. Adjusted earnings per share (EPS) was (US$0.02) compared to Echelon's US$0.
Cash costs and the all-in-sustaining cost (AISC) in Q4/22 were higher than Echelon expected. Cash costs were US$14.6/oz Ag eq versus Echelon's US$12.94/oz projection. The AISC was US$21.5/oz compared to Echelon's US$18.32/oz estimate.
Given the Q4/22 results and the pending acquisition, Echelon updated its model on Silver X to reflect both, noted Gonzalez. In its estimates, Echelon maintained its 2023 production projection, 1.7 Moz of Ag eq, but increased associated forecasted cash costs to US$12.50/oz from US$10.80. AISC stayed the same, at US$17.07/oz.
Also, Echelon incorporated the results of the Nueva Recuperada expansion PEA into its long-term estimates.
"We remain of the view that Silver X's Nueva Recuperada project is a potential company builder asset that provides Silver X with a strong foundation for company growth," commented Gonzalez.
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Disclosures for Echelon Capital Markets, Silver X Mining Corp., April 18, 2023
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Company: Silver X Mining Corp. | AGX-TSXV
I, Gabriel Gonzalez, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.