Silver Producer's Growth Profile Supports Continued Multi-Bagger Upside
By David J. DesLauriers
16 Apr 2007 at 05:07 PM GMT-04:00
resourceinvestor.com
TORONTO (ResourceInvestor.com) -- Your correspondent has thrice covered Aurcana Corp. [TSXv:AUN] in the past year, and each time the story has improved. AUN closed today at C$1.94.
Our first coverage came at PDAC in March 2006, when AUN shares were changing hands for just 25 cents. This was followed up by renewed coverage in late-May (at 50 cents) and late-November (at 75 cents) of last year updating investors as the story improved. On each occasion we spelled out our belief that Aurcana was a multi-bagger situation, which was destined to trade at a few dollars per share (readers can follow the above links to review past stories as good background on the company).
With Aurcana now officially producing concentrates, something which investors have been waiting for, we were of the mind that this would be an excellent time to update the situation as the story has only continued to improve since our last piece in November. Indeed, the company’s activities since then have us believing more than ever that this is a multi-bagger, even from current prices. The main news items and ongoing driving catalysts are listed below under their respective headings, in no particular order.
Move to Own 100% of La Negra
We believe that in the next few months Aurcana will announce a deal to acquire the outstanding 20% of La Negra that they do not already own. This will be a share deal, but it will be immensely accretive in terms of the amount of shares that need to be issued versus the added cash flow and NAV. This will boost cash flow per share numbers.
Doubling of Production at La Negra in Late 2008
With the money which the company has raised, Aurcana will significantly boost reserves, and our understanding is that La Negra can be brought to 2,000 tonnes per day production levels out of cash flows. We believe that this can be achieved by late 2008, doubling cash flow per share, as output doubles.
Acquisition of Rosario Should See Mid-2008 Production
Aurcana’s fabulous Mexican relationships resulted in the acquisition of the Rosario project which we think could add something in the range of 15 cents per share (at current commodity prices) to Aurcana’s cash flows, starting in mid-2008. This can be done without any further dilution.
Money for Drilling Means Hot Holes, Longer Reserve Life
Cash flow is particularly important to your correspondent and many Aurcana investors. The reality of the market however, is that great drill results drive share prices as much as monetizing of rock. With a large financing now completed, we believe that AUN will be able to hit big grades at La Negra and Rosario, which will translate into big share price upside as numbers are released.
Equally important, Aurcana’s financing will allow the company to boost reserves at both La Negra and Rosario through the drill bit, increasing mine lives and resulting in mine plans that call for greater throughput, and thus greater cash flow.
New Acquisition in the Offing
Knowing Aurcana’s management team and their excellent relationships in Mexico, we believe that in the next few months AUN could announce another property acquisition which could rival La Negra and Rosario. In other words, tonnage in place, infrastructure in place, restart operation to produce cash flow within 12-18 months. Should this comes to pass, Aurcana would have 3 producing mines by 2009, producing what we believe could be as much as $100 million in annual cash flow.
Conclusion
Aurcana management has done an excellent job, and particular kudos are due to their outstanding Mexican relationships of which we understand many other juniors operating in that country are considerably envious.
In sum, we believe that La Negra will be 100% owned, and will be expanded, Rosario will come online, a new mine will be acquired, reserves will grow, and drilling will yield consistent hot news flow. Given this, we see considerable catalysts leading to a higher share price in the next couple of months, and even more in the long term.
Indeed, the combination of the above could result in C$1 per share in cash flow for 2009 at current commodity prices, and, we believe, a 24-month share price target of anywhere between C$6-C$10.
Aurcana has already delivered multi-bagger returns to those who follow your correspondent’s work, but it is our belief that AUN, now on the institutional radar screen, is a blue-chip junior with great people and great properties to tuck away, because it is fairly low-risk and predictable, yet still can deliver exciting multi-bagger returns. |
