Silver X Mining Corp.'s (AGX:TSX.V) Q2/23 financial results were slightly below expectations, reported Red Cloud Securities mining analyst Timothy Lee in an Aug. 30 research note.
"Once production resumes, the company will need to ramp up production quickly to get back on track financially," Lee wrote.
286% return, still a Buy
Despite the miss, Red Cloud maintained its Buy rating and CA$0.85 per share target price on the Canadian silver producer, noted Lee. Its current share price, in comparison, is CA$0.22.
Thus, the projected return for investors in Silver X is stellar, at 286%.
Numbers at a glance
In his report, Lee presented Silver X's Q2/23 financial results.
Revenue was US$4.7 million (US$4.7M), up 2% from Q1/23 and up 46% over Q2/22. Adjusted EBITDA was (US$0.9M) versus (US$0.8M) in Q2/22.
The operating loss for Q2/23 was US$0.4M.
Cash costs were US$20.80 per ounce of silver equivalent (US$20.80/oz Ag eq). The all-in sustaining cost (AISC) was high, Lee noted, at US$29.76/oz Ag eq. This was in part due to US$1.3M of development work done at the Tangana mining unit; this added US$5.40/oz Ag eq to the AISC.
Silver X posted a net loss in Q2/23 of US$1.4M, or US$0.01 per share. This compares to Red Cloud and consensus' estimate of US$0.00 per share.
Inconsistent grades to blame
Lee ascribed Silver X's underperformance during Q2/23 to ore grade variability encountered during mining at its Nueva Recuperada project in Peru.
"As the company had previously announced, the mining operation ran into unforeseen low-grade pockets, resulting in reduced metal output and impacting the bottom line during the quarter," the analyst wrote.
Q2/23 was the second consecutive quarter in which lower-than-expected head grades impacted production.
Last year, in Q4/22, the average head grade of silver equivalent (Ag eq) that Silver X processed was 367 g/t. It dropped to 277 g/t Ag eq in Q1/23 then went down further in Q2/23 to 269 g/t.
Production down, processing up
In Q2/23, at Nueva Recuperada, Silver X produced 248,000 ounces of Ag eq, down 12% from Q1/23. Year over year, though, this reflected a 59% increase in metal produced.
Production resulted from 35,392 tons of Ag eq being processed at the previously mentioned 269 g/t. Tons processed in Q2/23 were 70% higher than a year ago.
What to watch for
Silver X is expected to restart production soon at Nueva Recuperada after a temporary pause to "implement a strategic operational reset and complete a negotiation of an extension of a social agreement with the local community," Lee explained. This was needed because roadblocks erected by local suppliers were hindering Silver X's operations.
A subsequent ramp-up of production at Nueva Recuperada could rerate the company's stock, purported Lee, as could some other expected, near-term events. They include various sets of results of ongoing exploration work and in H2/23, submission of an environmental and social impact statement.
Change in CFO
In other news, Silver X's chief financial officer Ronald Marino will leave as of Sept. 23, 2023. The search for a replacement is already underway.
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