SilverCrest Metals (SILV) has performed fantastically over the long term, beating most peers, metals, relevant indices and ETFs. However, the stock price has remained roughly stable over the past two years, even though the price of silver has been rising over this period.
Figure 1 – Source: YCharts
The recent lackluster stock price performance is likely due to a very significant ramp-up ahead of 2020 and the less exciting feasibility and development phase of the Lassonde Curve. However, commissioning is not far away, meaning the stock has the potential to re-evaluate provided everything in the construction phase continues to go according to plan.
Commissioning of Las Chispas
SilverCrest is primarily evaluated on the main Las Chispas project, with commissioning scheduled for the second quarter of 2022 and production ramp-up expected in the second half of this year.
Figure 2 & 3 – Source: SilverCrest January 2022 Overview
Construction is so far slightly ahead of schedule, with 54% complete in Q3 2021 versus 48% expected at that time. Total capital expenditure also sits well against budget, where most costs will be confirmed at this stage. There is therefore little risk of significant cost overruns for the project.
The company is also very well capitalized, with $199 million in cash in Q3 2021, and approximately $59 million in capital remaining to be committed through commissioning. Thus, there is plenty of liquidity in case there is a delay in commissioning and, therefore, the cash flow of the project.
The table below provides the net present value of Las Chispas under a few different metal price scenarios, where current prices fall somewhere between the baseline of the feasibility study and the upward scenarios of the feasibility study. feasibility.
Figure 4 – Source: SilverCrest April 2021 Overview
If we use the latest spot prices of $1,800/oz for gold and $23/oz for silver, we get an NPV of around $670 million with some interpolation.
As of Q3 2021, the company had 145 million common shares outstanding, if we exclude options, share units, and use the last share price. We get a market cap of $1,121 million and a market cap to NPV of 1.67.
Resource update and exploration potential
It is important to remember that outside the reserves the company has many resources, which are currently not part of the mining plan. There has been a lot of drilling since the last update, where another reserve and resource update is scheduled for 2022. This update has the potential to significantly increase reserves and extend life. of the project mine.
“Only 15 of over 45 known veins included in reserve estimate.” / Corporate presentation
Figure 5 – Source: SilverCrest Presentation January 2022
Besides Las Chispas, the company has also started drilling at El Picacho, which is located less than 85 km from Las Chispas. The results so far have been very encouraging with 21 holes averaging 4.1 meters grading 8.14 g/t gold and 49.7 g/t silver. There are currently 3 drill rigs in operation at El Picacho.
Figure 6 – Source: SilverCrest Presentation January 2022
There’s so much to love about SilverCrest Metals. It is a fully funded development company, close to production, with extremely good ratings and very low operating costs. The company also has exploration potential.
The company has done an excellent job of moving the project from exploration to production close in a short time frame without undue equity dilution, which is no small feat.
The management of some junior exploration and development companies can make very poorly timed capital allocation decisions and overcompensate for their insider dilution with very excessive option writing. However, SilverCrest has gone in the opposite direction by reducing the maximum number of options allowed to 5.5% from 10% before Q3 2021. This is something I think should be celebrated.
Figure 7 – Source: Third quarter 2021 financial statements
However, a minor concern is that there are a lot of delays in Mexico due to Covid-19. So while I wouldn’t worry too much about cost overruns, there is always the risk of delays, as we saw with MAG Silver’s Juanicipio project not too long ago. Given the good liquidity position, I expect the impact of potential delays to be very manageable.
For me, the valuation is still not attractive enough to buy the stock, where I think a lot of the resource update and other exploration successes already seem to be priced into the stock. I can definitely see some positive surprises in 2022 due to any catalysts or positive metal prices, but there are other quality projects in my view with more attractive valuations.