In a January 21, 2025 research note, Atrium Research analysts Ben Pirie and Nicholas Cortellucci initiated coverage on Santacruz Silver Mining Ltd. (SCZ:TSX.V; SZSMF:OTCQX; 1SZ:FSE) with a Buy rating and CA$0.90 target price, citing the company's successful integration of acquired assets and significant discount to peers.
The company operates four multi-metal mines across Bolivia and Mexico following its 2022 acquisition of three mines and an ore-sourcing business from Glencore. In April 2024, Santacruz renegotiated its debt with Glencore, reducing payments to US$10 million annually over eight years from US$22.5 million annually over four years while eliminating all royalties. This restructuring decreased net debt from US$176 million in Q4 2023 to US$46 million in Q3 2024, representing 0.6x Net Debt/OCF.
The company's San Lucas Ore Sourcing and Trading business utilizes excess processing capacity at its three Bolivian plants to produce zinc and lead concentrates, providing additional revenue streams. Santacruz generated US$30 million in operating cash flow in Q3 and is projected to reach US$79 million in 2024.
On market sensitivity, the analysts note the company has "exhibited a 1.4x beta to the silver price over the last three years and a 1.5x beta over the LTM due to its previous large debt balance, making it an ideal investment for those looking to take advantage of a rising silver price."
The company trades at significant discounts to peers, with multiples of 0.2x NAV and 1.9x 2025E OCF compared to peer averages of 0.6x NAV and 7.2x 2024E OCF. The analysts expect this valuation gap to narrow as the company improves costs and its balance sheet.
Key upcoming catalysts include ongoing quarterly production and financial results, as well as continued debt reduction.
The share price at the time of the report of CA$0.315 represents a potential return of 186% to Atrium's CA$0.90 target price.
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Disclosures for Atrium Research, Santacruz Silver Mining Ltd., January 21, 2025
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