Somebody else jumped on your wagon Claude:-))
The New Proxy for Silver
Natural Resource Investor
CORNER BAY SILVER INC. (TSE:BAY)
Thursday, 25 October 2001
Following is NRI Fax Alert, issued for market hours on Thursday, October 25,
2001.
Company-Sponsored Investor Relations Report
Fax Alert #12, Vol. 2001
NATURAL RESOURCE INVESTOR
& WORLD GOLD STOCK REPORT
"Your Key to Emerging Winners"
Fax Hotline for Market Hours 10/25/01
Corner Bay Silver Inc. (TSE:BAY)
EXPLOSIVE NEW ENTRANT IN THE SILVER SECTOR:
CORNER BAY'S ALAMO DORADO LOW-COST SILVER PROJECT BIDS TO TURN COMPANY INTO
ONE OF NORTH AMERICA'S LEADING PURE SILVER-PLAY PRODUCERS BY 2003
When investors talk silver stocks, the names that most often come to mind
are Hecla, Coeur D'Alene and, likely, Pan American Silver. They're among the
companies with well-known reputations as leading producers in this sector,
and their stocks tend to be the recognized proxies for silver in the public
markets.
Now into this scenario enters Corner Bay Silver Inc. (TSE:BAY), and the
entire established order of the silver sector is about to undergo a big
reshuffling. That's because seemingly coming out of nowhere little-known
Corner Bay is now closing in on the current leaders and becoming one of
North America's biggest pure silver-play producers. Not only that, Corner
Bay also aims to set the bar far higher for the profitability standards of
this sector.
Assuming full-scale production, as projected in the Prefeasibility Report of
September 2000, Corner Bay will set a torrid pace as the industry's
lowest-cost purely-focused silver producer. And, shockingly to many, it also
expects to operate at profitability levels unheard of in the industry
today, as we'll see below.
This is a big industry-changing event with major financial market
implications. Among other things, it will quite likely change the
composition of investors' silver-stock portfolios the world over, as the
Corner Bay pure silver-play instrument's features and distinctive
performance criteria catch on. We see Corner Bay now emerging as the silver
sector's new quality leader, and as its newly emerging blue chip currency.
Not least of the implications of this change of leadership is the
value-re-rating potential for Corner Bay's market cap. Today, BAY still
trades at just a third of the market-cap valuations of a Hecla or a Coeur
D'Alene Mines, and at about one-sixth the value of Pan American Silver.
Based on what the company has going for it, it looks ridiculously
undervalued. In the very near future, we think it'll be a dramatically
different story.
It would be hard to find another situation with so much potential all key
fundamentals now in place for possibly explosive capital gains. This is
one of the highest-quality value/growth propositions ever identified by
Natural Resource Investor, and we think our timing's just right for catching
it at the cusp of an industry breakout.
Corner Bay Silver note the name carefully now. It could become one of the
big winners of the decade for you.
Introducing Corner Bay Silver
While Corner Bay Silver hasn't been broadly visible up to now, the company
is extremely well regarded among financial institutions on Toronto's Bay
Street, the global center for mining finance. Blue-chip Canadian
institutions now own 25% of its stock with warrants that could increase this
ownership to one-third.
Major Canadian mining analysts have also been among the first to pick up on
the significant emerging value of the company, and this has resulted in
several recent "buy and outperform" recommendations from, among others, such
prominent houses as Deutsche Bank Alex. Brown and BMO Nesbitt Burns.
The focus of this attention is Corner Bay's big (5,369 hectare) Alamo Dorado
silver project, located in an historic silver-mining center of Mexico,
Sonora Province. The company is now completing the final Feasibility Study
for the Alamo Dorado project.
Subject to a positive Study and project financing, the company estimates the
project to be in production in late 2003. It's worth noting that Corner Bay
defined this project with intensive drilling and assaying putting in more
than 24 kilometers-worth of reverse-circulation drillholes and more than 3
kilometers-worth of diamond drilling.
The key here is that Alamo Dorado is now being planned as the highest-grade
heap-leach primary silver mine in North America. In the case of much of the
world's silver production, silver is a by-product of zinc and lead mining.
At Alamo Dorado, the primary product is silver, with some gold as a
by-product, which only serves to increase the overall value of the silver
mine.
Prefeasibility Results
Detailed Prefeasibility Study results* to date demonstrate that Alamo Dorado
currently has a mineable 129 million ounces of silver-equivalent reserves,
with an additional 14 million ounces still classed in the resource category.
The higher-grade zones of the project (>25 grams silver equivalent per
tonne) are classified in the reserves category, the lower-grade ore (10-25
grams silver equivalent per tonne) is reflected in the resource figure.
We use the word "current" when discussing reserves because the company has
to date defined only a portion of Alamo Dorado's broader potential. Based on
historical drilling success here, Corner Bay is likely to add consistently
to these reserve figures. Other targets on the property with strong
"look-alike" characteristics to the presently defined deposit offer the
chance for substantial reserve growth. These potentials are not factored
into this analysis of the project as it currently stands.
Extensive recent metallurgical tests demonstrate that the company will
recover up to 80% of the silver (and about 88.5% of the gold) in the
higher-grade reserve tonnage categories of the project. However, including
lower grades and lower recoveries in the project economics, Corner Bay
assumes overall silver recoveries at 67% (and gold, 77%) of currently
defined project reserves excluding all other resource classifications.
Based on this strict analysis of recoveries, the Prefeasibility Study
assumes a constant $5.28/oz. silver price over the currently planned 10-year
mine life of the project. Alamo Dorado yields an economically recoverable
86-million ounces of silver and silver-equivalent. This gives Corner Bay one
of the largest recoverable-ounce figures in the industry.
But it's not just the recoverable ounces that are important here; it's also
the exceptionally low recovery costs of those ounces.
As the metallurgical references suggest, Alamo Dorado will be a low-cost
open-pit, heap-leach operation with low stripping ratios, not a "hard rock"
underground mine. The total project construction cost has been estimated to
be $45-million. The low operating costs of this type of mining, combined
with the big size of the deposit and its high-grade characteristics, produce
uniquely superior economics for Corner Bay as one of the industry's
lowest-cost silver miners one of the best pure silver-play economics in
the industry today.
The Prefeasibility Study estimated production rates of 16-million ounces of
silver per year for the first two years at a cash cost of just $1.55 oz. The
figures are based on detailed economic modeling to date.
Cash recovery costs in the second phase (years 3-6) move to $2.51/oz.
higher than the initial figures but still one of the lowest in the industry,
according to research data. Forecasts of total annual production rates and
recovery costs in the later years of the project may, however, be affected
by the addition of new higher-grade reserves from continued exploration at
the project.
Comparatives vs. Leading Producers
Let's put the outstanding economic advantages of Corner Bay into clear
perspective. We can do that by comparing Corner Bay's vital statistics with
the key value benchmarks of the three leading silver producers we've
mentioned above Hecla, Coeur D'Alene, and Pan American Silver.
In fact, independent research conducted by BMO Nesbitt Burns clearly
suggests that Corner Bay outranks these major silver producers in all or
nearly all value-determining performance benchmarks, as follows.
Annual Production
Corner Bay starts out as the industry's production leader right from the
outset of production, now planned to begin in 2003. Prefeasibility shows
average production of 16-million ounces a year in the first two production
years.
By comparison, Pan American Silver's estimated 2003 production stands at 12
million ounces, Coeur D'Alene's at 9 million, and Hecla's at 6.4 million.
Cash Operating Costs
As we've already noted, Corner Bay immediately impresses as the industry's
undisputed low-cost leader. Its 2003 Prefeasibility cash cost starts at
$1.55/oz. for the first two years of production, and rises to $2.51/oz.
thereafter.
By comparison, Pan American Silver's estimated 2003 cash costs are pegged at
$3.48; Coeur D'Alene's at $3.94; and Hecla's at $4.11, per estimates by BMO
Nesbitt Burns published in October 2001.
It helps Corner Bay big-time that all of its operations are at just one
project which is a pure low-cost primary-silver deposit.
For many producers, the economics of getting silver production at
polymetallic mines are often a lot more complicated, because they also have
to factor in the extraction costs of zinc or lead.
Recoverable Ounces
By the measure of total reserves as actual recoverable ounces, Corner Bay's
86-million ounce figure ranks it in a respectable second position behind Pan
American Silver's 91-million recoverable ounce reserve.
But note it well Corner Bay stands significantly ahead of Coeur
D'Alene's 52-million and Hecla's 57-million recoverable ounce reserves.
We're inclined to see Corner Bay's lower cash costs as an offset to Pan
American's larger recoverable ounce base, putting the two about even. These
same lower costs value Corner Bay even further ahead of Hecla and Coeur
D'Alene than indicated by their comparative shortfall in recoverable
reserves.
Profitability
Here's a remarkable fact for the silver sector. By the standards of actually
making a profit at the business of mining silver, Corner Bay's profitability
models show it as standing alone among all silver producers listed in the
American and Canadian markets.
Assuming a fixed $4.50 silver price for 2003 and a base of about 30 million
shares outstanding for Corner Bay at that time, BMO Nesbitt Burns calculated
the company's pro-forma per-share earnings for its first year of operations
at an astonishing $US 2.41/share.
By comparison, according to the same research, Pan American weighs in with
an estimated per-share loss of $0.07 for the same year; Coeur D'Alene, with
a $0.72 loss per share; and Hecla with a $0.26 per-share loss.
We emphasize that these are pro-forma calculations only, but if Corner Bay
actually delivers any figures approaching this magnitude, it'll shock the
industry.
This highlights a factor that's well understood by experienced silver-stock
investors: In an environment of $4.50 silver prices, the brutal fact is that
all or nearly all of the major silver producers operate at a loss. They may
have very large, even immense, holdings of silver resources. But these are
mostly uneconomic below a $6.00 silver price. And, given their relatively
higher recovery costs on silver mineable at $4.50, adding in corporate
operating costs to the cost equation eats them alive. So they report losses.
Many analysts will assert the real rationale for silver stocks (absent
current profitability) is that they serve as a leveraged proxy and
convenient liquid instrument for any big move in silver prices.
A move of, say, 50% in silver, might result in moves of perhaps 300% to 500%
in selected silver stocks as underlying totals of previously marginal but
now-economic reserves rocket skywards, and profitability of operations moves
sharply toward the black.
This is perhaps one reason why the established producers get broad
acceptance in the markets despite their ongoing losses. Their long-term
viability, and the hopes that ride on their stocks, are squarely tied to the
silver price itself rather than any immediate earnings criteria.
Corner Bay has to be looked at entirely differently because it adds an
entire new dimension to this equation. The company is designed to operate
profitably from day one; its stock has the unique potential to appreciate
based on substantial positive cash flows, PE ratios and EPS calculations
without any move in underlying silver prices. At the same time, it can also
participate on a leveraged basis on any upmove in underlying silver prices.
In principle, the combination of these two distinct features holds big
potentials for making Corner Bay a superior investment vehicle, in our view.
Uniquely, it can be a strong capital-appreciation/value-growth play as well
as a powerful silver hedge.
Management
Peter Mordaunt Appointed as Chairman a year ago, and serving as President
of Corner Bay since 1994, Mordaunt is the strategist and hands-on exec
behind the company's rapid strides towards industry leadership. A geologist
with 20 years experience in mineral exploration and development, he earlier
held executive positions with several other resource companies.
Steve Brunelle Vice President since 1991 and Director since 1996, Brunelle
is also a geologist with 20 years experience. He's played an instrumental
role in the company's corporate and finance strategy development.
Bill Faust Vice President, Operations, fills an important operational role
supervising Corner Bay's transition to a silver producer. Faust joined
Corner Bay early this year, having previously worked as engineering manager
for Santa Fe Pacific Gold Corporation, as well as mine operations manager
for Gold Fields at its Chimney Creek Mine in Nevada. Additionally, he worked
at the Chino operation of Phelps Dodge Corp. and recently at El Dorado Gold
Corporation's La Colorado Gold Mine also located in Sonora State near the
Alamo Dorado project.
Edward Badida Vice President, Finance. A recent addition to the Corner Bay
team, Badida brings 35 years experience in the resource sector as a
chartered accountant, and formerly with PricewaterhouseCoopers.
Steps Toward Production
At this point, Corner Bay is focused on completing the final Feasibility
Study, and has the financial resources via a recent C$ 5.5-million equity
financing. The company is targeting a positive production decision and mine
construction to follow within six to eight months from securing project
financing, with initiation of operations in 2003.
A first-class group of mining specialists, headed by U.K.-based AMEC Simons
Mining and Metallurgy engineering firm from their office in Phoenix,
Arizona, is expected to base all final feasibility work on a constant
life-of-mine $4.50 silver price, rather than the $5.28 figure used in
pre-feasibility analyses. Also contributing is Tucson-based Mintec, Inc.
which completed the initial project Prefeasibility Study last year. Mintec
is a recognized leader in economic modeling of open pit mining.
The input for the important metallurgical work on the property is provided
by Metcon Research, Inc., the metallurgical arm of KD Engineering, based in
Tucson, Arizona. Metcon successfully consulted on the development of the
World's only other known primary-silver, open-pit/heap-leach mine; Coeur
D'Alene's Rochester Mine in Nevada.
The remarkably robust Prefeasibility economics of Alamo Dorado translate
into an astonishing base-case annualized after-tax IRR of 68% and calculate
a payback of just 1.5-years for the estimated $45-million capital project
cost. Bank debt financing is expected to account for 65% to 70% of this,
requiring only reasonable dilution as a means of securing the remaining
$15-million equity component.
Near-Term Outlook
At this point, we expect the visibility and appeal of the company to grow
fairly constantly and even dramatically. That's because it's now moving
quickly toward several benchmarks of added value final feasibility,
production decision, mine financing, plant construction, start of production
operations.
Based on the Prefeasibility economics, the consensus of major Canadian
mining analysts has reflected price targets in the C$ 5.00 range for the
company's stock while Corner Bay is in the development stage, and these
outlooks are based on very conservative valuation analyses.
A Word About Silver
While Corner Bay is happy to operate in a world of $4.50 silver, it's easy
to see that the company's potential can multiply almost exponentially if any
forecasts of sharply higher silver prices do materialize.
Some analysts believe that silver markets should explode upwards because of
developing shortages in above-ground inventory and shortage of new mine
supply. Others postulate the possible emergence of a short squeeze from
attempts to recover at least two years' worth of global silver production
that's supposedly been sold forward (and already consumed in the
manufacturing, electronics and jewelry sectors).
As for our own views, we're simply unable to forecast the silver market. For
all the expertise that goes into various supply-demand outlooks, silver had
handily defeated all prognostications over the last two decades. Over the
last 12 years, it averaged $4.80 to $5.00 per ounce, but also fell off to
$3.80 in 1993 and frequently traded down to $4.20. On the recent price spike
this September, it managed a move only to $4.65.
Better, we believe, to build a company by planning its economics
conservatively at the lower-case long-term support price of $4.50 for
silver.
It's true, of course, that if silver should go to, say, $10/oz., Corner Bay
would stand to make an absolute mint (and its stock head for the roof) with
the option of just mining from lower-grade material and never even touching
the higher-grade deposit areas.
One recent technically oriented mining outlook which caught our eye
because it's an original study of zinc supply works especially hard to
suggest some potential for such a move.
Published last month by Dr. Heinrich Leopold, the paper makes a case that
zinc and silver have tended to trade inversely to each other over the last
ten years. When zinc is up, silver is down, and vice versa.
That's because much of the world's silver is mined as a by-product of zinc.
So, when zinc prices are up, lots of silver is produced along with this
metal and silver prices tend to fall because of greater supply. When zinc
prices are down, less zinc is mined, and therefore less silver. So silver
prices tend to hike up.
Dr. Leopold's thesis is that low zinc prices have currently slowed down and
curtailed a lot of the silver supply, and that silver prices could therefore
be headed higher. Until the zinc price cycle reverses in the longer term,
Dr. Leopold sees a bright near-term future for silver.
We neither endorse or dismiss this theory. We merely pass it along as
interesting. Dr. Leopold's own educated guess is that this inverse pricing
factor could take silver to $7/oz. by the end of this year, and to $10/oz.
next year.
Nice, if it happens; OK if it doesn't.
Corner Bay's own strategy of generating substantial ongoing profits as the
lowest-cost pure silver-play producer in the sector looks like a sure
winner. There's certainly enough meat on this bone to make a feast in a
low-price silver environment, with no risk of a feast-or-famine syndrome
that bets the ranch on unpredictable price moves in silver.
One type of upside bonus that the company does factor in is this: it plans
on additional exploration at its property for the chance of systematically
adding significant new reserves. This could add to the value of the company.
Our belief is, therefore, that Corner Bay is likely to have a big, reliable
future as the most attractively rated liquid instrument in the silver
sector, by virtue of its prudent features and unique potential.
Corner Bay Silver is in the process of filing its 20F Registration Statement
with the SEC, in anticipation of becoming a U.S. Reporting Issuer and also
obtaining a broader U.S. market listing visibility.
Currently, the company has about 15.5-million shares, about 20 million fully
diluted. The symbol on the TSE is BAY. The stock has recently traded in the
C$1.50 range.
This one demands an immediate place on our readers' radar screen. We'd watch
it very closely because of its quite dramatic potentials.
For immediate corporate information, please call Vice President Steve
Brunelle at (416) 368-6240. Corporate website: www.cornerbay.com.
Corporate Information
Corner Bay Silver Inc.
Exchange TSE
Symbol BAY
Shares Outstanding 15.5 million
Shares Outstanding
Fully Diluted 20 million
Recent Price C$1.50
Contact Steve Brunelle
Phone (416) 368-6240
Fax (416) 368-7141
Email CornerBaySilver@on.aibn.com
Website www.cornerbay.com |
