My Top Silver Miner For 2011
Aurcana Silver – One of the most lucrative Junior ( soon to become mid-tier) silver producers in the industry, providing a very lucrative investment opportunity if one is willing to take on a little more risk. This risk, however, has been dramatically reduced over the past couple of months making it ripe for the picking. Equity financing coupled with a good quarter( in which silver prices averaged over $10 less than current spot) has de-risked it to a considerable degree. One of the best things is the fact the investment community has not paid any attention thus far.
Aurcana has two mines, one in operation and a second larger mine set to come on-line in 2012. It has geographical diversification with mines in Mexico and Texas, the latter (The Shafter Mine) will become their flagship operation once in production which should pave the way for possible acquisitions to further growth down the line. Historic mining in Presidio Country (South Texas) had high grades to the tune of 15oz/t.
La Negra – Aurcana’s first producing mine is a great start to transforming them from and Exploration Company to a commercial producer, providing positive operating cash flow as of Q4 2010, which will increase over the course of 2011 due to higher year over year metal prices and ramp up toward peak production. There still remains upside potential as 5 new deposits have been identified, likely to be given more attention once their Shafter mine is up and running. Cash Costs remain relatively high at $8.25/oz but will come down due to the structure of the mine and pillar mining methods. Higher grade ore is expected which should also help bring down extraction costs over the next couple of years. There is one caveat however, In order to bring La Negra into production; they sold a 50% royalty stream to Silver Wheaton in order to get into production. While this isn’t great news it only applies to the silver mined, not the bi-products. In other words, they will pay Silver Wheaton 600k ounces annually, leaving them with 1.4m silver equivalent ounces. On the positive side the recoup a fraction approx $4/oz for each of the 600k ounces in addition to an underground mine is being explored for further expansion.
Shafter Mine – Located in Texas, is Aurcana’s Flagship property boasts an incredible internal rate of return and is set to commence production in a little over a year. Aurcana is cashed up via an equity financing deal in addition to operating cash flow generating by La Negra. Silver Dore will be produced on sight, which will reduce costs, especially important for aggressive growth mining companies. The most bullish aspect of this project is the incredible internal rate of return. At $21/oz silver using a 5% discount rate, it is a staggering 73%! The Shafter Mine will produce 3.8m ounces in the first two years of operations increasing to 4m ounces thereafter with cash costs of $8.27/oz.
Recent Updates: Aurcana has resolved their liquidity and solvency concerns via a 60m dollar equity offering to help fund some of the portion of the capital requirements for their Shafter Mine. They have also got a 25m loan from Sprott Asset mgmt, which will allow them to repurchase their streaming agreement with Silver Wheaton, drastically increasing future margins and total production from La Negra.
In Conclusion: Aurcana presents a rare opportunity in the silver arena which has been decreasing as many silver producers have doubled many times over. So seeing an 80m dollar company increasing production from 1m ounces in 2010 to over 6m ounces by 2012-2013 is one incredible deal.
This is 1 of the 13 mining stocks in a report highlighted by a colleague and myself in a report "Treasure Hunting" which also includes a database of miners valued based on 3 various metrics relative to industry averages and the prices of gold or silver.