Gold Co. Funds Mine Restart Plan With Placement

Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) announced it has arranged a non-brokered private placement for CA$1 million to finance the mine restart plan and maintenance at its 100%-owned La Guitarra silver and gold project in Mexico.

The company said the placement was arranged with an existing long-term shareholder and consists of 3,571.428 shares at CA$0.28 per share.

The offering is expected to close shortly, the company, based on the receipt of all necessary approvals, including the TSX Venture Exchange.

La Guitarra is a permitted, past-producing underground mine with a 500-tonne-per-day (tpd) processing facility that operated until 2018, the company said.

"The eastern portion of the district was host to large high-grade mines that were significant producers during the Spanish colonial period," Sierra Madre's website said. "This area has only seen limited modern drilling and exploration, even though it is host to hundreds of old mines, prospects, workings, and veins." 

The Catalyst: Updated Resource Estimate

A mine restart study for La Guitarra should be finished in Q2 of 2024 and will include new estimates of underground mine material on the Guitarra, Coloso, and Nazareno mines, the Los Angeles deposit, and an operating cost estimate. It also will include a capital cost estimate.

Money from the private placement will also be used for the continued care and maintenance of the project.

Last year, the company filed a technical report increasing its Mineral Resource Estimate (MRE) for the project by 373% in its indicated silver equivalent (Ag Eq) to 27.2 million ounces (Moz) and an increase of 204% in its inferred Ag Eq resource to 20.2 Moz.

According to the company's report, the La Guitarra project contains an indicated 3,842,000 tonnes of silver resources and an inferred 4,105,000 tonnes of silver resource.

Potential for Stock to Re-Rate

VSA Capital mentioned the resource update in a November 2023 note on Sierra Madre, rating Sierra Madre as a Buy for potential investors with a target price of CA$0.90.

"The resource upgrade means that the stock is now trading on an EV/oz of US$1.1/oz, which is a discount of 70% to the peer group. This is despite the near-term restart potential underpinned by full permitting and an experienced management team with in-depth knowledge of the asset. Furthermore, we expect the restart plan to confirm modest capital costs to achieve the current nameplate capacity of 520tpd in a phased manner. However, this scale of production is a starting point to unlock the wider potential of the c40,000ha license area," the report stated. 

That same month, Bereket Berhe with Beacon Securities rated Sierra Madre as a "Speculative Buy" with a share target price of CA$0.75.

"The analyst views Sierra Madre as undervalued based on progress advancing La Guitarra towards a near-term restart of production," the analyst wrote. "With exploration upside from Tepic and La Tigra, Beacon Securities sees potential for the stock to re-rate."

Technical Analyst Clive Maund reviewed the company in July of 2023, rating it a "Strong Speculative Buy" and saying he believes it to be low risk for a speculative junior stock. Maund was encouraged by the high-quality gold and silver grades found on the La Tigra property.

In August of 2023, Maund released an updated review of the company, where he reiterated his "Buy" rating and stated that the stock had outperformed the sector and looked set to advance. 

Bright Future for Gold This Year?

Despite some worries that a delay in interest rate cuts by the Fed could dampen gold's shine — lower interest rates make holding non-yielding bullion more attractive to investors — some analysts are bullish on it in 2024.

Barry Dawes of Martin Place Securities wrote that gold looked "ready to break higher against bonds," and that "gold stock sentiment is close to a bottom" and "should be ready to rally soon now."

"Gold stock investors and speculators have been ground into a pulp over the past few years, but there is still hope for a better future," Dawes wrote on February 24. "Many technical (indicators) are suggesting a breakout is at hand."

Ownership and Share Structure

Sierra Madre provided a breakdown of the company's ownership and share structure, where management and founders own approximately 21.1% of the company. According to Refinitiv, President and CEO Alexander Langer owns 2.01% of the company with 2.99 million shares, Executive Chairman and COO Gregory K. Liller owns 1.83% of the company with 2.72 million shares, Director Jorge Ramiro Monroy owns 1.36% of the company with 2.02 million shares, Director Alejandro Caraveo owns 1.19% of the company with 1.77 million shares, Director Kerry Melbourne Spong owns 0.44% of the company with 0.66 million shares, and Director Gregory F. Smith owns 0.17% of the company with 0.25 million shares.

Institutional investors own 11.1% of the company. Commodity Capital A.G. owns 4.51%, with 6.72 million shares.

First Majestic Silver Corp., a strategic investor, owns 47.7% of the company with 69.06 million shares.

The rest is with retail and high-net-worth investors.

According to Refinitiv, there are 149.12 million shares outstanding and 69.63 million free float traded shares, while the company has a market cap of CA$43.21 million and trades in a 52-week range of CA$0.26 and CA$0.74.

Important Disclosures:

1. Sierra Madre Gold and Silver Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Sierra Madre Gold and Silver Ltd.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
4.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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