Americas Silver Corporation (TSE:USA), formerly Scorpio Mining, is a mid-tier silver producer focused on growth in precious metals from its existing asset base and execution of targeted accretive acquisitions. Americas Silver Corporation owns and operates the Cosalá Operations in Sinaloa, Mexico and the Galena Mine Complex in Idaho, USA. The company has 39.54 million shares and has a market capitalization of CAD164.34 million.
Americas Silver Corporation has 80 million ounce of silver equivalent resources. In 2015, its consolidated silver production was 2.65 million silver ounces and 4.87 million silver equivalent which was at an all-time high. The company’s 2016 annual production is expected to be 5.0 – 5.6 million silver equivalent ounces including 2.6M ounces of silver, 58M pounds of zinc and 54M pounds of lead.
Americas Silver Corporation currently gets more than 50% of it’s revenue from base metals. Beginning in August 2017, 70% of revenue should come from base metals. Due to the huge rise in lead, copper and zinc in recent weeks and the plunge in the peso it is actually generating more cash flow now compared to when silver was US$19.60. The company has paid off $2M of it’s existing loans and plans to make additional early payments. The cash balance at September 30, 2016 was $26.6 million with net working capital of approximately $28.0 million.
Americas Silver Corp (TSE:USA)’s Properties
The Cosalá mining district
The Cosalá mining district is located in the east-central portion of the state of Sinaloa, Mexico along the western edge of the Sierra Madre Occidental. In 2015, production from the Cosalá Operations totalled 1.16 million silver ounces and 2.40 million silver equivalent ounces at a cash cost of US$10.80 per ounce and an all-in sustaining cost of US$14.89 per ounce. It has one operating mine Nuestra Señora and and two mines San Rafael and El Cajon under development.
Nuestra Señora is a fully mechanized underground silver-zinc-lead-copper mine with the benefit of flexible mining methods and diversified metal production.
The San Rafael property hosts a zinc-lead-silver deposit and is located approximately 8km north of the Company’s Los Braceros process plant. The San Rafael Project is expected to deliver average annual production of 1.0 million ounces of silver, 50 million pounds of zinc and 20 million pounds of lead over a 6 year initial mine life at negative AISC based on current reserves. San Rafael project will increase the company’s silver equivalent production to 7.0-7.5 million ounces at $7.00-$8.00 silver all in sustaining costs in 2018. According to the latest news release on December 7th, 2016, Americas Silver Corporation has been able to reduce the estimated capital requirement of developing San Rafael from approximately US$22 million to US$18 million. The main factors in cost reduction are improvements in mine design, lower Mexican Peso-USD exchange rates (from 16:1 to 18.5:1), and refurbishing existing equipment from Nuestra Señora.
Americas Silver Corp is currently developing it’s El Cajon mine. Permits are in place and the portal was collared in March 2014. More than 1,000 meters of ramp and lateral development has been completed to-date to provide access to upper stopes. Given changes in metal prices, the company expects to be back in production in 2017. This mine will be used to supplement production at Cosalá between now and the start-up of San Rafael.
The Galena Complex
Galena Complex is located in the Coeur d’Alene Mining District in Shoshone County, Idaho. Galena mine is a high grade 54 million ounce silver mine. Galena mine was acquired by Americas Silver in 2014 through the merger with U.S. Silver & Gold. In 2015 full-year production at the Galena Complex totalled 1.49 million silver ounces and 2.46 million silver equivalent ounces. Galena mine costs have been brought down currently to about $12.75-$13.00/ounce range.
Americas Silver Corp’s Future Valuation
At the Denver Gold Forum/Precious Metals Summit 2016, Americas Silver Corporation President and CEO Darren Blasutti Americas Silver Corp’s CEO Darrin Blasutti expressed that these are exciting times for the company and their story is just starting to unfold. He and his team are extremely excited about what is taking place with the company presently and in the future.
Vast opportunities to expand all of their mines lives through resource exploration. They have one of the largest current resource estimates relative to their peer group and should easily expand the current number.
Positive Earnings and Profit
Americas Silver released its financial statement for the third quarter of 2016 on November 14, 2016. The company generated quarterly revenues of $16.8 million and a net income of $1.0 million or $0.01 cents per share in Q3, 2016 compared with revenues of $12.8 million and a net loss of ($4.8) million or ($0.01) cents per share in Q3, 2015. Darren Blasutti said, “The third quarter was a strong financial and operational quarter for Americas Silver generating net income and operating cash flow, while continuing to reduce cash costs and all-in sustaining costs at the Company’s operations.” The company is projecting US$50 million per year profit beginning in August 2017. If all warrants and options are exercised the company should receive about $15M in additional cash.
Lowest Cost Producer
The San Rafael mine has very little risk to get the development work completed. According to the company’s webcast at the Denver Gold Forum (summary), the all-in sustaining cost is projected to drop substantially to around $4.00 an ounce and potentially lower after Americas Silver Corp begins mining their San Rafael project in Mexico.
As the company is bringing costs down substantially to the point that they will be one of the lowest cost producers of any existing silver company non dependent of their market cap they are ramping up silver production without changing AISC. It was very clear in the presentation that this was a recurring theme, i.e.: El Cajon, Coeur, Caladay, etc.
Americas Silver Corp’s Listing on NYSE Exchange
Americas Silver Corp’s share are going to be listed on NYSE exchange in order to get more exposure to the company. The issue of the NYSE listing will be decided in the shareholder meeting scheduled on December 19, 2016. The initial NYSE listing criteria indicates a minimum share price of $US 2.00. The Company’s shares have been consolidated on December 21, 2016 at a Share Consolidation ratio of one post-consolidation common share for each 12 pre-consolidation common shares resulting in approximately 40,000,000 (39,540,409) post-consolidation common shares outstanding.
Americas Silver Corporation has a very competent management and technical team. Risk is dropping all the time as the company expands the number of operationally efficient mines they bring into production or fix through. Future Investors will also see the value to our management and technical team based on what they have done and also what they will do in the future!!
Future Share Price
With a projected profit of $50M beginning in August 2017 Americas Silver Corporation would be earning approximately $1.04 earning per FD share (EPS). We can safely expect the share price to be 10 times the EPS at current silver price of CA$3.2.
In 2011, the company produced 2.8 million ounces of silver equivalent and traded to its highest price of CA$29.64 (CA$2.47 pre-consolidation, see below) when silver was trading in the $30 – $35 USD range. With the increased production of more than 5 million ounces of silver in 2016 and onwards and higher silver price US$25 per ounce or more we could be looking at a $36 stock in 2018.
Increasing shareholder value is just starting due to drastically lowering costs and ramping up production. At higher silver prices they have huge production expansion capabilities and at today’s price they have good expansion opportunities. All of these factors add up to a significant re-rating of Americas Silver Corporation among its peer group as it starts to supersede the group on costs, production, resources ….. etc.