Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) has announced the commencement of exploration activities in the Eastern District of the Guitarra silver-gold project in Mexico, reported VSA Daily Miner Analyst Oliver O'Donnell in an October 23 research note.
It marks a significant step in showcasing the broader potential of the license area, especially following the initial expansion plan to achieve a processing capacity of 1,250-1,500 tonnes per day, the analyst wrote.
Success in developing the Eastern District could not only extend the mine's lifespan at this production rate but also justify further expansion, making the company an appealing acquisition target. Additionally, it introduces new growth catalysts for the share price, which has risen 177% year-to-date, O'Donnell said.
"The initial budget for exploration is US$3.5m and covers a mapping and sampling phase enabling drill target definition for a 20– to 25-kilometer drill program," the analyst noted. "Phase one will likely take nine months enabling drilling permits to be secured concurrently with drilling conducted over the subsequent 12-18 months."
Area Known for High-Grade Outcroppings, Historical Workings
The Eastern District is renowned for its high-grade outcroppings and historical workings, O'Donnell said. Previous modern operators have lightly drill-tested the area, suggesting significant high-grade potential. Management estimates that the current drilling covers only 15% of the mapped veins (over 60 kilometers so far) across six vein systems, with Mina de Agua included in the 2023 resource.
Historical production and drilling have shown exceptional grades, albeit with small resource footprints. Average silver grades range from 250 grams per tonne silver (g/t Ag) to over 600 g/t Ag, while the gold credit is between 3-4 g/t in some areas, indicating that on an equivalent basis, 800-1,000 g/t Ag Eq is achievable, he said. The veins are generally similar to those in current mining areas, with thicknesses between 1-4 meters.
Silver Not Yet Overpriced
VSA's model operates at US$28/ounce with conservative operating assumptions. We recently adjusted our model to prices of US$4,000/ounce and US$47/ounce, bringing the target valuation to CA$2.30/share based solely on the DCF, while recent highs push that valuation to CA$3.00/share (CA$550 million), underscoring the leverage to record high precious metals prices. Our DCF approach captures a snapshot valuation of CA$1.40/share.
Volatility is inherent in silver bull markets, and although precious metals prices have corrected after appearing overbought in previous cycles, this suggests that silver is not yet overpriced, the analyst said.
The rationale for continued increases in precious metals prices remains unchanged, with concerns over U.S. treasuries, lower U.S. interest rates, and geopolitical tensions. Notably, when silver reached US$54.79/ounce, the gold-silver ratio was 80, compared to 31 in 2011 and 17 in 1980 when silver previously peaked at US$48.7/ounce and US$49.45/ounce.
"We reiterate our Buy Recommendation and CA$1.40/share Target price," O'Donnell wrote.
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- Sierra Madre Gold and Silver Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$3,000 and US$6,000.
- As of the date of this article, officers, contractors, shareholders, and/or employees of Streetwise Reports LLC (including members of their household) own securities of Sierra Madre Gold and Silver Ltd.
- Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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Disclosures for VSA Capital, Sierra Madre Gold and Silver Ltd., October 23, 2025:
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