A lot of silver stocks have done very well in 2020 but for some strange reason the best deposits, some of them proven to be economic to mine, in PEA, PFS & FS stage, have been lagging behind.
As you can see in illustration above for example there are extreme difference in valuation per silver in the ground held by companines. What is significant here is that among the very high valuations to the left, all of them are very small deposits with no clear potential and in most cases they have no indication of being profitable to mine (except of course Aurcana, Alexco that are producing small amounts).
On the right side however, there are several high quality >100 moz companies (Silver One, Southern Silver, Kootenay, Silver Bull, Almaden) whos valuations are the lowest in the sector. Some of them are also in PFS stage or PF stage, in other words, they are highly derisked compared to the left side.
I believe that in 2021 the large deposits will become the top performers in the sector and smaller ones start lagging behind. Below is a list of the most interesting cases among companies with already large deposits or mid size deposits proven to be economical to mine (PEA, PFS, FS stage). In the next post I will go through the most interesting stocks with pre PEA stage projects.
1.) Silver Bull Resources, NPV:MCAP ratio 100:1
This is the silver stock with the highest potential, however since they are in a legal dispute it’s high risk until final decision is out (should be out this month). If you believe they will win, which I do, then this is the ultimate silver stock to own going forward. Why I think they will win in court? Because from what I can see, the group suing Silver Bull have no real case, what they claim is impossible to prove. I will not go into the details here.
Why is Silver Bull number 1? The illustration above shows why, the company at a $30 million market cap gives nearly zero value to what they have in the ground. What do they have in the ground?
The picture above is from a PEA released in 2013 showing that at lower cut-off at the main project Sierra Mojada, the company has 178,4 moz silver in the ground plus 2,64 million pounds Zinc. The PEA also shows that at current silver price pre tax NPV is close to $1 billion and that the projects has a 19 year mine life & peak production of 9 moz/year. That would be considered on of the largest silver mines in Mexico.
That’s just the beginning, Sierra Mojada is a district with lots of exploration targets, and current deposits is likely to extend at least 1000 m to the east and 400 m to the west. As if this was not enough, the company just released that their new project (Beskauga) in Kazakhstan has 3,89 moz gold, 12,2 moz silver & 696 k tons of copper, and here’s the kicker: The deposit is open in all directions. JORC based PEA realeased several years ago shows the resources are twice as large as the newly release NI-43 101. It also shows (JORC PEA) that NPV at current gold & copper prices are above $2 billion.
So in summary: Silver Bull trades at a market cap of $30 million, but their projects NPV are at $3 billion, the opportunity here is epic and since Beskauga is not affected by court decision the risk seems almost non-existant. Even on Beskauga alone this stock is extremely undervalued.
2.) Chesapeake Gold, NPV:MCAP ratio 20:1
Chesapeake comes in at number 2 because their main asset Metates is one of the largest in the world and provides insane leverage to the price of silver & gold. The company is in the process of lowering capex with new technology, I wrote about how that may affect the project yesterday here. In this post I will show you how valuable this project is even without that new technology, sheet below shows NPV sensibility at different prices of gold & silver:
A $200 move in gold & $2 move in silver almost doubles the value of the project, as you can see from base case to high case pre tax NPV goes from $1,7 billion to $3,1 billion. Apply current prices, $400 gold & $4 silver pre tax NPV should be far above $6 billion (this is based on leverage shown in chart above, I dont know whta the real numbers are). So $6 billion NPV & current market cap at $300 million, that give a NPV:MCAP ratio of at least 20:1 and that is why Chesapeake comes in at number #2 in my list.
Think about what $50 silver and $2,500 gold would do to the value of this stock and also consider what new lowered CAPEX as a result of new heap leach approach would do to NPV in a updated PFS.
3.) Rockhaven Resources, NPV:MCAP ratio 15:1
One of the highest grade gold deposits in Yukon, with silver as a kicker. Alomst unknown among the silver crowd, here’s a high quailty company trading at $35 million market cap FD with 28 moz silver & 1,18 moz gold in the ground. This may not sound very impressive but factor in that this project is in Yukon (safe jurisdiction) and is in PEA stage going into PFS i.e highly derisked.
At current precious metals prices the companys main asset, the Klaza project has a after tax NPV far above $500 million. The project will once in production produce about 1 moz silver & 70 koz gold/year. Potential to increase resources and production capacity is high:
They will extend LOM or production scale via resource expansion. Resource upgrade and a PFS including this upgrade is expected in 2021. Even without this upside potential, the NPV:MCAP ratio is at 15:1 already and that is why this stock is number 3 on the list.