Silver X Mining Corp. (AGX:TSX.V) released a preliminary economic assessment (PEA) showing "robust economics" with expansion of the Tangana mining unit at its flagship Nueva Recuperada silver-gold-lead-zinc project in Peru, after which Red Cloud Securities increased its target price on the company, reported analyst Timothy Lee in a Feb. 15 research note.
"[The PEA] solidifies the company's expansion plan for Nueva Recuperada, paving the way for a feasibility study and construction start within the next two years," Lee commented.
Red Cloud's new target price on Silver X is CA$1.10 per share, up from CA$0.95, noted Lee. The increase reflects updated capital and operating costs of the Tangana expansion. In comparison, Silver X's current share price is about CA$0.32, multiples lower than the target price. Thus, the potential return for investors is significant. Silver X is Buy rated.
"Ramp-up to full production along with positive results from exploration activities could lead to a rerating of the stock," Lee wrote.
Attractive Project Economics
According to the PEA, the Tangana expansion is projected to yield an after-tax net present value discounted at 10% of US$175 million (US$175M) and an after-tax internal rate of return of 39%, Lee reported. The after-tax payback period would be four years.
Tangana is expected to produce an average of 4,200,000 ounces (4.2 Moz) of silver equivalent per year over a 12-year mine life. Total operating costs are forecasted to be US$78 per ton.
The cash cost is estimated to average US$8.80 and the all-in sustaining cost, US$16.20, both per ounce of silver equivalent.
New Mill Planned
Lee pointed out the PEA includes building a mill with a 1,500-ton per day (1.5 Ktpd) capacity near the Tangana mine portal. The cost for this is included in the initial capex estimated at US$61M.
Currently, Silver X is trucking ore to and processing it at the existing 720-ton-per-day mill. The added mill will eliminate the need to transport the ore and thereby reduce the operating cost, wrote Lee. The company will keep using the smaller mill but to process ore from the Plata mine. Between the two mills, the capacity will total 2.2 Ktpd.
"While building a new mill requires a larger initial capex, the resulting lower operating costs result in a net increase to our valuation for Silver X," Lee added.
Resource Estimate Updated
The Tangana expansion PEA is based on a newly updated resource estimate for Nueva Recuperada, noted Lee.
The update, from 2022, shows a 300%-plus boost to the Measured and Indicated (M&I) resource to 3,600,000 tons (3.6 Mt) from 0.84 Mt. M&I plus Inferred tonnage, however, decreased slightly to 132.1 Moz from 166.6 Moz.
The new resource reflects a 20% increase in the gold grade but a decrease in the silver, lead, and zinc grades. The net effect is a 21% decrease in contained Ag eq ounces.
Next Steps for Expansion
Silver X's timeline for Tangana includes updating the environmental impact statement this year, completing a feasibility study in 2024, and starting construction late next year or in early 2025. Once the new mill is up and running, in 2026 at the latest, the company will expand mill capacity to about 2 Ktpd.
In the near term, however, investors can expect to see more exploration results from Nueva Recuperada on an ongoing basis and Silver X's Q4/22 results sometime this quarter.
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1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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