Silver X Mining Corp. (AGX:TSX.V) just released a preliminary economic assessment (PEA) for its Nueva Recuperada expansion project in Peru, and it "demonstrates robust growth potential," reported Echelon Capital Markets analyst Gabriel Gonzalez in a Feb. 16 research note.
"Production is expected to increase from 2,000,000 ounces of silver equivalent (2 Moz Ag eq) to over 5 Moz Ag eq once the Nueva Recuperada 1,500 tons per day (1.5 Ktpd) expansion is complete," wrote Gonzalez.
Return on Investment
Echelon has a CA$0.80 per share target price on Silver X, the current share price of which is about CA$0.30 per share. This price difference implies a potential 142% return for investors. The mining company is rated Speculative Buy.
"We remain of the view that Silver X has a solid foundation for future production and company growth," Gonzalez wrote.
PEA Takeaways
Gonzalez presented the expansion PEA highlights.
The study calculates for the project a US$175 million (US$175M) net present value discounted at 10% along with a 39% internal rate of return (IRR), both after tax.
Average production from the expansion is an estimated 4.2 Moz of Ag eq annually over 12 years.
"Between current production capacity and the expansion, we continue to see upward of +5 Moz Ag eq of production potential at Nueva Recuperada by 2025," Gonzalez commented.
For the PEA, Silver X updated Nueva Recuperada's existing resource estimate. This included a boost to the Measured & Indicated (M&I) resource to 3,600,000 tons (3.6 Mt) from 0.84 Mt.
"We remain of the view that Silver X has a solid foundation for future production and company growth," Gonzalez wrote.
This affords "further confidence in the resource model, albeit with a reduction in silver-lead-zinc grades that was partially offset by higher gold grades," Gonzalez explained.
To facilitate the expansion, a 1.5 Ktpd capacity plant will be constructed near the Tangana mining unit. Silver X will use the existing 720-ton-per-day mill to process ore from La Plata and possibly Red Silver.
The expansion cash cost is projected to be US$8.80 and the all-in sustaining cost (AISC), US$16.20, both per Ag eq ounce. Capex is an estimated US$61M and includes US$9.7M in contingency.
Potential To Reduce Costs
Gonzalez noted three ways expansion costs might be reduced. One is by revising some of the operating cost assumptions, which seem too conservative to Echelon, the analyst wrote. This change could lower the realized cash and AISC costs by about US$1–2 per ounce.
A second way is by sourcing equipment in Peru and adjusting specific scopes, according to Silver X management, which believes this could cut costs by as much as US$15M.
The third way is by extending the mine life via infill drilling and upgrading M&I resources.
More accurate cost estimates will dictate how Silver X funds the expansion, noted Gonzalez.
He wrote, "In very rough terms, we believe that if initial costs could be reduced by a third as discussed, by 2024, over US$10M could be internally funded, some US$20M could come from debt considering current PEA's attractive 39% post-tax IRR and [the] rest financed from working capital and/or equity."
What Happens Next?
Silver X will keep infill drilling to increase M&I resources to 5–6 Mt, if possible, to extend the mine life in advance of the planned bankable feasibility study.
"Given existing Inferred category resources, as well as the continuity of the veining at the Tangana mining unit along strike from Tangana West through Tangana Main (currently in production) and Tangana East (formerly San Antonio)," Gonzalez wrote, "we believe significant additional resource growth potential exists, in addition to other still unexplored areas across the Nueva Recuperada project."
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Disclosures:
1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Important Disclaimers for Echelon Wealth Partners Inc., Silver X Mining Corp., February 16, 2023
This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.
ANALYST CERTIFICATION
Company: Silver X Mining Corp. | AGX-TSXV
I, Gabriel Gonzalez, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
