Silver Bull Resources Is Getting it's Ducks In A Row
The Investment Doctor
Seeking Alpha
October 7, 2013 09:16AM
Introduction
In this article I'll have a closer look at Silver Bull Resources ( SVBL), which aims to develop a silver-zinc project in Mexico. I've been closely following the company for a while now, and was waiting to see an independent study on the viability of its project before writing about it. As Silver Bull has released its long-expected Preliminary Economic Assessment, I feel confident enough to initiate a long position.
I will start with an overview of the Sierra Mojada project and discuss the numbers in the Preliminary Economic Assessment and I will make some cash flow projections. I'll discuss the influence of dilution on the NPV/share and how the project might get financed. This will result in my investment thesis at the end of this article.
Executive Summary
In this article I'll prove why Silver Bull Resources might be an attractive investment, as its recently completed PEA outlines a 5Moz+ per year production rate at very competitive single-dollar cash costs. As the company won't only produce silver but also zinc and maybe copper and lead as well, it has a lot of options to finance the $300M capex by closing offtake agreements for the by-products. But even if the company would have to issue 200M new shares to raise money, the after-tax NPV/share would still be 130% higher than the current share price.
However, I don't think Silver Bull will ever reach the production phase as its expected output of 5.5M oz silver and in excess of 50 million pounds of zinc might be enticing for companies such as First Majestic Silver ( AG) and Nyrstar to try to get their hands on an exciting Mexican low-cost project.
There are obviously risks involved with any potential investment in Silver Bull Resources, but I feel the potential of the company outweighs the risks as the independent NI43-compliant PEA has shown this project is feasible.
The upcoming catalysts will be the ongoing metallurgical test work on for instance the recovery of lead, which could further reduce the cash cost of the silver. I also expect the company to immediately start working on the Pre-Feasibility Study which could be completed as early as H1 next year. As Silver Bull has also signed no less than 14 confidentiality agreements with so-called 'strategic parties', I wouldn't rule out a strategic joint venture deal whereby the project would get de-risked considerably.
After seeing this PEA I'm confident this project will get built in the future, and will initiate a position in Silver Bull Resources one of the next few days/weeks.
The Sierra Mojada Project
The Sierra Mojada project was discovered about 130 years ago and still counts 54 mine shafts which were operated by artisanal miners. The project has access to excellent infrastructure as there's a railroad going directly to the potential mine site (which could be very beneficial to ship the concentrate from the mine site), as well as paved roads. Water shouldn't be an issue either as Silver Bull has drilled its own water wells on the property.
(click to enlarge) 
What's positive about this project is the fact the zinc and silver resources are already in the indicated category, which a step higher than the inferred category most mining companies use for their PEA's. This means the current resource estimate of 162.9M ounces of silver and 2.4 billion pounds of zinc can definitely be relied upon, and I do not expect any difficulties to convert this indicated resource base to the proven and probable categories. As you can see on the image, the grade is a very respectable 71.4g/t silver and 1.39% zinc (for a total rock value of $75.5/tonne). If one would apply a higher cut-off grade of 45g/t silver (vs. the 25g/t cutoff grade in the base case resource estimate), there would still be approximately 130 million ounces of silver at an average grade of over three ounces per tonne. The zinc grade would increase as well to 1.44% (for a rock value of $93 per tonne of mineralized ore).
Much more at:
seekingalpha.com
Author's Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SVBL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article |
