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 August 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 share price at the time of the report 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 tonne (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."
| Want to be the first to know about interesting Gold and Silver investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
- Sierra Madre Gold and Silver Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.
For additional disclosures, please click here.
Disclosures for VSA Capital, Sierra Madre Gold and Silver Ltd., August 28, 2024
Investment Analyst Certification In my role as a Research Analyst for VSA Capital Limited, I hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
Non-Independent Research This is a marketing communication. It is non-independent research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Important Disclosures This research report has been prepared by VSA Capital Limited, which is party to an agreement to be paid a fee as corporate finance advisors and arrangers with, or has provided investment banking services to, Sierra Madre, or has been party to such an agreement within the last twelve months, and is solely for, and directed at, persons who are Professional Clients as defined under Annex II of the Markets in Financial Instruments Directive, Directive 2004/39/EC, or as defined in the FCA Handbook. Persons who do not fall within the above category should return this research report to VSA Capital Limited, Park House, 16-18 Finsbury Circus, London EC2M 7EB, immediately. VSA Capital may distribute research in reliance on Rule 15a-6(a)(2) of the Securities and Exchange Act 1934 to persons that are major US Institutional investors, however, transactions in any securities must be effected through a US registered broker-dealer. If you are a US person, you must fulfil the requirements of a major US institutional investor as defined by the Securities Exchange Act 1934 and subsequent guidance from the SEC to receive this research report. Any failure to comply with this restriction may constitute a violation of US law for which VSA Capital Limited does not accept responsibility. The information in this report is not intended to be published or made available to any person in any jurisdiction where to d o so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or t o you (by reason of your nationality, residence or otherwise) it is not directed at you. This research report is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any purpose, without out prior written consent. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities. The information and opinions contained in this research report have been compiled or arrived at by VSA Capital Limited from s ources believed to be reliable and in good faith but no representation or warranty, express or implied, is made as to their accurac y, completeness or correctness. All opinions and estimates contained in the research report constitute the Company's judgments as of the date of the report and are subjec t to change without notice. The information contained in the report is published for the assistance of those persons defined above but it is not to be relied upon as authoritative or taken in substitution for the exercise of the judgment of any reader. The Company accepts no liability whatsoever for any direct or consequential loss arising from any use of the information cont ained herein. The company does not make any representation to any reader of the research report as to the suitability of any investment made in connection with this report and readers must satisfy themselves of the suitability in light of their own understanding, appraisal of risk and rewa rd, objectives, experience and financial and operational resources. The value of any companies or securities referred to in this research report may rise as well as fall and sums recovered may be less than those originally invested. Any references to past performance of any companies or investments referred to in this research report are not indicative of their future performance. The Company and/or its directors and/or employees may have long or short positions in the securities mentioned herein, or in options, futures and other derivative instruments based on these securities or commodities. Not all of the products recommended or discussed in this research report may be regulated by the Financial Services and Marke ts Act 2000, as amended by The Financial Services and Markets Act 2012, and the rules made for the protection of investors by that Act will not apply to them. If you are in any doubt about the investment to which this report relates, you should consult a person authorised and regulated by t he Financial Conduct Authority who specialises in advising on securities of the kind described. The Company does and seeks to do business with the companies covered in its research reports. Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to: http://www.vsacapital.com/policies/conflict-of-interest-policy. VSA Capital acts as Corporate Adviser/Broker to Sierra Madre and is therefore classed as a connected company. Investors should consider this report as only a single factor in making their investment decision.
Definition of Ratings VSA Capital Limited uses the following stock rating system to describe its equity recommendations. Investors should carefully read the definitions of all ratings used in each research report. In addition, since the research report contains more complete information concerning the analyst’s views, investors should carefully read the entire research report and not infer its contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor’s decision to buy or sell a stock or investment fund should depend on individual circumstances and other considerations. VSA Capital Limited’s recommendations are defined as follows: BUY: The stock is expected to increase by in excess of 10% in absolute terms over the next twelve months. HOLD: The price of the stock is expected to move in a range between -10% and +10% in absolute terms over the next twelve months. SELL: The stock is expected to decrease by in excess of 10% in absolute terms over the next twelve months. In addition, on occasion, if the stock has the potential to increase by in excess of 10%, but on qualitative grounds rather than quantitative, a SPECULATIVE BUY may be used.
Distribution of VSA Capital Limited’s Equities Recommendations VSA Capital Limited must disclose in each research report the percentage of all securities rated by the member to which the m ember would assign a “BUY”, “HOLD, or “SELL” rating, and also the proportion of relevant investments in each category issued by the issuers to which the firm supplied investment banking services during the previous twelve months. The said ratings are updated on a quarterly basis.
