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speedybure (< 20)

Part 1 of 5 - Speedy's Top Silver Picks 2012



February 18, 2012 – Comments (6) | RELATED TICKERS: PAAS , MIEFF.DL


 5) Pan-American Silver; Following the buyout of Minefinders, Pan-American gets my vote as the best senior silver producer [SLW doesn't count nor does first majestic until it crosses 10m a year which will be 2013]. Yes, they have some operations in Peru, Argentina and Bolivia but the aforementioned buyout of MFN does and says several things. 

1) They are confident Navidad got permitted, which should be a catalyst and send PAAS back to at least $30/share when announced.

2) Gives them far more exposure to Mexico courtesy of Dolores and La Bolsa. When fully optimized Dolores will produce approx 6.75m oz Ag annually and 157,000 Au @ $400-$450 Aueq oz. This is double the output of 2011 and will only cost the company about 180m [yes the study says 163 but they always undershoot]. La Bolsa is an small but good addition, with capital outlays of only 40m for 35,000 Au annually.

3) A market re-valuation is highly likely as it will close the 2-3 yr growth cap, the market has been penalizing PAAS for. The market likes to see production growth and should catapult it to 26-27m SEO in 2012, up from 22m in 2011.

4) If Navidad is permitted and built and I'm forecasting, PAAS should become the next 50m oz producer by 2016, perhaps pushing 60m oz depending on such things as La Preciosa. Navidad will add 17m oz annually after removing the 12.5% stream owned by SLW via the debenture issued by Aquilene. Dolores will add 13m SEO using a 40.1 GSR , which adds up to 53m-55m oz annually. But when the 55% interest from La Preciosa is included, an additional 3-4m SEO will allow PAAS to become a 55m+ producer.

 Using a 32.50 Ag price, I get a NAV of $42/Share. Applying the typical 1.25x NAV, yields a price of $52.50/share. 

6 Comments – Post Your Own

#1) On February 18, 2012 at 6:45 PM, selfdestruct2 (34.11) wrote:

What's your thoughts on PPP and AUQ?


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#2) On February 18, 2012 at 7:37 PM, speedybure (< 20) wrote:

not a huge fan of Primero due to the stream to SLW and the fact it pays tax at spot but receives $4/oz. 

AUQ I like a lot under $9. I would talk about it more but I work for the Morgan Report and I just finished a 6 page appraisal of the company and all its assets.  

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#3) On February 18, 2012 at 9:22 PM, jwebbzor (< 20) wrote:

That silver stream is almost a dealbreaker... but I still have a small position in Primero (at around $3.20). They have a low P/E, a good chunk of cash, and over 1 million ounces of reserves.

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#4) On February 19, 2012 at 12:03 PM, XMFSinchiruna (26.59) wrote:

Hey speedy,

So glad you're doing this, and great choice in PAAS! I have been a buyer myself since the Minefinders deal. Looking forward to the remaining picks.


A small portion of my own investment thesis in PPP is based in the expectation that the company will successfully restructure that tax issue. Gold and silver mining are staples of Mexico's revenue base, and the mining-friendly government is unlikely IMO to unduly penalize this one company for its quirky structural composition.

Also, GG's 36% stake is all the indication a Fool needs as to the expert dealmaker's value assessment at the original $500m transaction value. That was with the pre-existing, more onerous silver stream that suffered from the same tax treatment under GG.

And finally, please keep in mind that those reserves are just the beginning. The ultimate reserve potential of the asset is quite a few multiiples removed from the present mark.

In part because the silver stream issue has kept so many investors at arm's length from Primero, I think it's clear the issue has been more-than-adequately discounted.

Don't want to change the direction of the discussion, which I would seek to redirect back to Speedy's astute selection of Pan American, but I couldn't help speaking to Primero's unique strengths. 

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#5) On February 19, 2012 at 12:15 PM, XMFSinchiruna (26.59) wrote:

Speedy, can I also infer then that you like Orko Silver at its present valuation? Strikes me as low-risk with heir interest carried through to production; not to mention the obvious incentive for PAAS to consolidate the project.

Confidence in the inevitability of Navidad's permitting is attainable not only by interpreting the strategy behind the Minefinders move, but also through the shift in language in PAAS more recent communications. Furthermore, Mark Bailey, who obviously studied PAAS' outlook very thoroughly prior to the announcement, expressed considerable confidence in Navidad during my interview with him in Vancouver.

Sinch (Long PAAS). 

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#6) On February 19, 2012 at 12:51 PM, speedybure (< 20) wrote:

That;s a good question and It;s very difficult to answer as two scenarios can play out. 1) The JV operates as planned and it gives investors attractive returns or.... Pan American does an all stock takeover for a premium albeit relatively small given the structure of the JV is for PAAS to incur ALL CAP_EX requirements, which when adding over-runs and additional exploration will likely be 250-275m for 55%. So for the remaining 45%, I think it would be willing to spend an equal amount. This would also probably be the step when all is said and done to make it a 60m SEO produce by 2016. 

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