Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) is working to secure a total of CA$6 million (CA$6M) of financing it plans to use to commence production at the La Guitarra project in Mexico it acquired last year, the company said. It expects to have the financing completed by the end of February 2024, well in advance of its July 2024 target for restarting this past-producing operation.
"Given the [Sierra Madre] team's financing capabilities and background, we don't believe [raising the money] will be a big issue," Carlisle Kane, editor/publisher of The Equedia Letter, wrote in a November 2023 article. "Collectively, this team has raised over US$1 billion for mining companies."
Sierra Madre said financing will come from 10 different groups and three different vehicles. The specific sources will be four royalty streams, five offtake agreements and one venture capitalist.
Robust Asset and Project Portfolio
This Canadian precious metals explorer and developer has three projects, all in the mining-friendly jurisdiction of Mexico: La Guitarra, Tepic and La Tigra, Analyst Bereket Berhe described in a Nov. research report. Then, his firm Beacon Securities initiated research coverage on Sierra Madre.
"We view Sierra Madre as more than just a developer of one mine. Sierra Madre and its team now have a vehicle that is capable of substantial organic growth and through more acquisitions," Berhe wrote.
The company is focused mainly on getting La Guitarra up and running, a low risk undertaking, and it is close to achieving it.
The mine, which historically produced about 1,000,000−1,500,000 ounces of silver equivalent per year (1−1.5 Moz Ag eq/year), already is fully permitted, infrastructure is in place and the processing facility, working and easily expandable, has a 500 ton per day capacity, Kane wrote. Sierra Madre is actively reviewing avenues to increase that.
"Sierra Madre believes, with the right upgrades and permits, it can hit upwards of 2 Moz Ag eq/year, equal to US$46 million (US$46M) in annual revenue at US$23/oz silver," noted Kane. "There's even an opportunity to double that production again."
La Guitarra has a resource estimate that Sierra Madre expanded and updated in November 2023, Berhe wrote. The new total resource is 47.3 Moz Ag eq, up 275% from about 17 Moz previously. The Indicated resource is 27.2 Moz Ag eq, a 373% increase from 7.3 Moz before. The Inferred resource is 20.2 Moz Ag eq, up 204% from 10 Moz.
Thibaut Lepouttre, editor of Caesars Report, wrote in a November article, "Coming out of the gate with almost 50 Moz Ag eq with in excess of half those ounces in the higher quality Indicated resource category feels like a flying start."
Plus, La Guitarra offers exploration upside potential, noted Berhe.
Kane pointed out Sierra Madre also has a permitted tailings facility, containing 2,000,000−2,500,000 tons of 30−40 grams per ton (30−40 g/t) silver plus 0.4−0.6 g/t gold. The company could reprocess the tailings if it could get a permit to do so.
Sierra Madre is run by seasoned industry vets with extensive knowledge of mining and operating in Mexico. They have major involvement in managing the exploration and development of, collectively, more than 600 Moz silver combined resources and reserves.
"It's extremely rare to find a junior company that has the potential to achieve commercial production in such a short amount of time," wrote Kane.
Silver Market Favorable for Miners
Silver experienced a global supply-demand deficit in 2023 for the third consecutive year, in part due to heavier-than-projected demand for use in photovoltaic panels, wrote Chen Lin in the recent article, "2023: The Dawn of the Silver Boom." Lin writes the What is Chen buying? What is Chen selling? newsletter and is a Streetwise contributor.
Demand for the metal is on the rise, particularly in three industries. In solar energy, the next generation of photovoltaic panels is going to need 25−150% more silver for greater efficiency, according to The Silver Institute's World Silver Survey 2023. In industrials (vehicles and consumer electronics), silver demand for soldering and brazing in new vehicles is forecasted to increase 23% by 2030. For 5G technology (semiconductor chips, cabling, microelectromechanical systems, and Internet of Things-connected devices), silver demand is projected to double this year alone.
All of this need for the metal points to "a structural silver shortage for decades to come," Lin wrote. A silver undersupply generally leads to a higher silver prices.
Also supporting silver is the slight drop in treasury yields expected this year, Haywood Securities indicated in a January 2024 research report.
Technical Analyst Bruce Powers at FXEmpire, predicted a 2024 high for the silver price of US$34.43 per ounce, in December 29, 2023 article. The price now is about US$23.12 per ounce. In a January 15, 2024 article, Powers wrote silver has been consolidating for about the past eight months, and signs indicate the phase may be ending and a developing uptrend will follow.
This StockCharts graph shows silver poised to start rising soon.
The Catalyst: Mining Restart
The major catalyst on the horizon for Sierra Madre's stock is the company taking the La Guitarra mine off of care and maintenance and getting it running, now slated for July 2024, six or more months earlier than originally planned.
"The faster you produce, the less dilution shareholders experience," Kane noted.
In the interim, completion of a mine restart plan to include economics, expected in Q1/24, should lead to a rerating of the share price, Berhe wrote.
Other catalysts are progress on readying the La Guitarra operation for restart and progress on its tailings project.
According to Berhe, near-term cash producer Sierra Madre was undervalued and still trading near the acquisition value of La Guitarra, despite having grown the resource and done work to re-commence the operation. Thus, Beacon rated it a Speculative Buy.
Technical Analyst Clive Maund also recommended investors buy and stay long in Sierra Madre in his August 2023 report. At the time, he indicated, based on its recent and historical patterns, the stock seemed "well-placed to advance anew, especially, of course, if the sector starts to advance as it looks set to."
At Sierra Madre's current share price, Kane pointed out, new investors in the company today "are arguably paying for the La Guitarra mine at a steeply discounted price. . .In other words, silver and Sierra Madre are effectively on sale."
Lin recently said now was a good time to invest in silver equities.
Overall, according to these experts, Sierra Madre is a compelling investment opportunity given it is undervalued, it is about to become a producer by restarting a historically producing mine in a favorable jurisdiction, its team is savvy with a solid track record, silver demand is increasing and the metal's price is expected to, therefore, rise.
Ownership and Share Structure
According to Sierra Madre, its largest owner is First Majestic Silver, with 69,000,000 (69M) shares for a 47.7% strategic interest.
Institutions own 11.1% of the shares. One of them, Commodity Capital AG, holds 1.31% or 1.95M shares.
Management and founders hold 21.1%.
According to Reuters, these insiders are Sierra Madre President and CEO Alexander Langer with 2.01% or 2.99M shares, Executive Chairman and Chief Operating Officer Gregory K. Liller with 1.83% or 2.72M shares, Lead Director Jorge Ramiro Monroy with 1.36% or 2.02M shares, Director and Country Manager Alejandro Caraveo with 1.19% or 1.77M shares, Corporate Secretary Kerry Melbourne Spong with 0.44% or 0.66M shares and Director Gregory F. Smith with 0.17% or 0.25M shares.
Retail investors own the remaining 20.1% of shares.
Sierra Madre has 149.12M outstanding shares and 69.51M free float shares. The company’s market cap is CA$53M and its 52-week trading range, CA$0.30−0.51 per share.
| Want to be the first to know about interesting Silver investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
