Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) moved up guidance for reaching a commercial production rate at its La Guitarra mine in Mexico to Q4/24 versus Q1/25 previously, and on the news VSA Capital raised its target price on the producer, reported Oliver O'Donnell, natural resources analyst, in an Aug. 28 research note.
"With gold at all-time highs and silver up 23% year to date, these high prices, which likely have further to run in our view, provide strong tailwinds, mitigating commissioning risks," O'Donnell wrote.
176% potential return
VSA increased its target price on Sierra Madre to CA$1.30 per share from its target in May of CA$1 per share, the analyst noted.
The new target implies a gain of 176% from the company's current share price of about CA$0.47, which is up 25% year to date.
Sierra Madre remains a Buy.
Sufficiently funded for ramp-up
O'Donnell reported that the market has not recognized Sierra Madre's achievements of first production and concentrate sales, likely due to skepticism the company can execute its plan without additional funding.
However, management indicated its recently secured US$5 million (US$5M) is enough to reach its commercial production rate target of 500 tons per day (500 tpd). VSA expects US$2.5M will cover the initial mine restart, and another US$4M, which cash flow will cover, will be needed to ramp up to 1,000 tpd over the next two years.
"Our analysis suggests that the plan is feasible, especially given the current pricing environment," the analyst added. "With management successfully executing its strategy to bring the mine back into profitable production, a rerating is both likely and justified towards a fair target of US$5.40 per ounce."
Transitioning to producer
Sierra Madre's recent achievements at La Guitarra led to management favorably revising guidance for reaching 500 tpd of production, O'Donnell pointed out. This rate will reflect higher throughput and compared to July, a higher combination of grade and recoveries.
Since acquiring the project in March 2023, the company refurbished the plant, the underground workings and the mining fleet. In late June 2024, it began testing mining, and in July, achieved production averaging 259 tpd. At month's end, the Canadian miner sold and shipped its first concentrates: 91 dry metric tons (DMT) at 3,000 grams per ton (3,000 g/t) gold and 90 DMT at 30 g/t gold.
"The initial average run rate of 259 tpd already exceeds the first month production implied daily average," O'Donnell wrote.
Exploration upside exists
The 39,714 hectare La Guitarra property contains several known vein systems, including Mina de Agua, Magdalena, Las Animas, Maravillas and Rincon, O'Donnell noted.
"This is therefore an extremely prospective area for exploration," he commented. "We believe that a drilling program here could deliver meaningful catalysts for the share price, particularly given the high-grade nature of the targets."
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