Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX), a Mexico-focused development and exploration company, recently announced that it has received a non-revolving, secured term loan of US$5 million from First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE).
The loan is expected to help the company advance its plans to restart the La Guitarra Silver-Gold Mine Complex, which Sierra Madre acquired from First Majestic in March 2023.
Beacon Securities analyst Bereket Berhe, in a research report published on May 9, 2024, highlighted the loan's key terms, including a 2-year term at a 15% annual interest rate, compounded monthly, with payments due to the lender starting 6 months from the commencement date.
"SM may pay back the Loan plus accrued and unpaid interest to the lender at any time without penalty," Berhe noted.
Since acquiring La Guitarra, Sierra Madre has made significant advancements to the facilities, equipment, and infrastructure at the mine site.
"SM intends to use the proceeds of the loan to complete this work, which will include lead orders for critical mining equipment, processing facility upgrades, mill repairs, full staffing arrangements, and final underground development readied for operational restart," Berhe stated.
The analyst also discussed Sierra Madre's progress at La Guitarra, including the company's retention of TechSer Mining Consultants Ltd. to complete a Mine Restart Study (MRS). The study will update capital, operating, and labor cost estimates to reflect current realities and evaluate mill throughput expansion potential within 24 months following commercial production.
"The company is studying an initial production level of 350tpd, followed by a potential increase to the grinding circuit's capacity to greater than 500tpd," Berhe noted.
Beacon Securities values Sierra Madre using a project-level discounted cash flow (DCF) model, assuming a phased expansion of La Guitarra's mill capacity to 1,000 tonnes per day (tpd), producing approximately 1.77 million ounces of silver equivalent (eqAg) per year at an all-in sustaining cost (AISC) of US$15/oz.
"Using long-term commodity prices of US$25/oz Ag and US$1,700/oz Au, results in a project post-tax NPV5% of ~$190MM. Using 0.6x P/NAV multiple, we derive a Speculative Buy rating and a 12-month target price of CA$0.75/share for SM shares," Berhe explained.
The analyst pointed out that Sierra Madre is currently trading at 0.33x Beacon Securities' net asset value (NAV) estimate, below the junior gold and silver developers/producers average of 0.45x. On an enterprise value per in situ ounces basis, the company is trading at US$0.55/oz, compared to its peers' range of US$1.0 to US$2.0/oz.
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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.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Sierra Madre Gold and Silver Ltd.
- 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.
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Disclosures for Beacon Securities, Sierra Madre Gold and Silver Ltd., May 9, 2024
Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? ☐ Yes ☒ No
Does the analyst who prepared this research report have a position, either long or short, in any of the issuer’s securities? ☐ Yes ☒ No
Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? ☐ Yes ☒ No
Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? ☐ Yes ☒ No
Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? ☐ Yes ☒ No
Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? ☐ Yes ☒
No Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? ☐ Yes ☒
No Is Beacon Securities a market maker in the equity of the issuer? ☐ Yes ☒
No Has the analyst visited the issuer's material operation(s)? ☒ Yes ☐ No
Did the issuer pay for or reimburse the analyst for the travel expenses? ☐ Yes ☒ No
All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Canadian Investment Regulatory Organization (CIRO). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete. All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries.
Dissemination Beacon Securities distributes its research products simultaneously, via email, to its authorized client base. All research is then available on www.beaconsecurities.ca via login and password.
Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst’s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
