Silver Companies: Reserves/Resources

In this post we provide reserve and resource data for the group of silver companies we follow. This group is intended to include all mining companies that meet the following criteria:

• Primarily focused on silver exploration/production
• Listed on a North American Stock Exchange or the London Exchange
• Have at least one 43-101 report containing a resource statement for a silver property

Note: if you notice any companies that meet the above criteria and are not covered in this post, please let us know and we'll add them to the list so that they are covered in the next update.

The data presented here was extracted from recent corporate presentations, company fact sheets, 43-101 technical reports, and financial reports. We have split the companies into groups as follows:

• Silver Producers: Have one or more currently producing silver properties (produced some amount of silver in the last 4 quarters)
• Senior Silver Producers: Produced more than 10Moz Ag in the last 4 quarters
• Mid-Tier Silver Producers: Produced at between 5-10Moz Ag in the last 4 quarters
• Junior Silver Producers: Produced less than 5Moz Ag in the last 4 quarters
• Silver Explorers: Have one or more exploration/development stage properties (or past producing properties), but no currently producing properties (produced no silver in the last 4 quarters)
•  Senior Silver Explorers: Has silver reserves (proven & probable)
•  Mid-Tier Silver Explorers: Has silver resources in the measured & indicated category
•  Junior Silver Explorers: Has silver resources but only in the inferred category

 Before we present the data, a few comments about it:

• For companies listed on a Canadian Exchange, financials are reported in CAD; for companies listed on a U.S. Exchange, financials are reported in USD; for companies listed on the London Exchange, financials are reported in GBP (yes, this makes the London listed companies look cheaper than they actually are, but there are only two of them, both massive.... and we are not all that concerned about the high-end of the spectrum; if it makes you feel better, please adjust the numbers yourself)
• We purposely excluded Silver Wheaton from this list; although they derive their revenue primarily from silver, they do not produce any themselves nor do they have any silver resources/reserves (instead they acquire silver from silver stream agreements the silver producers)
• More than half of Pan American's resources (751.7Moz or 55%) come from the Navidad property in Argentina, which the company has recently suspended investment in until they  "have legislation in Chubut that will allows us to develop the project"; which may never come, so the value ascribed to these resources could be near zero
• Although SilverCrest Mines currently produces more gold than silver, they do have a large silver resource and have plans to increase their silver production so that by 2017 they produce more silver than gold; thus we think they belong on this list
• First Majestic does not yet include any of the resources from the recent Silvermex acquisition in the resource number it publishes as it is in the process of re-evaluating them; this means once included the resource numbers from Silvermex will likely drop from what Silvermex had reported (upwards of 100Moz), but certainly they'll be more than zero
• First Majestic is also currently in the process of acquiring Orko Silver; if this transaction is successful, it would be a substantial resource increase (+50%) for First Majestic

And now, without further delay, the data.

Silver Producers: Reserves/Resources

Silver Explorers: Reserves/Resources

We've highlighted the price per ounce (all categories) P/oz column as well as the row for Aurcana, the one company in this list that we regularly cover. You'll notice that there is quite a range of P/oz values from as low as $0.16/oz in the case of Oremex all the way up to $14.67/oz in the case of Huldra.

Important: the P/oz metric is one tool at we can use to judge the value a company offers, however, be aware that it is a rather crude metric; further research is often required to make this number useful. Specifically, do the resources have the potential to be extracted economically? Only reserves have demonstrated economic viability; resources do not. Having a large resource number that has a very low P/oz may look attractive, but if it cannot be economically extracted, the low P/oz is likely warranted. Answering the economic viability often requires in-depth research on the part of the investor. Likewise, resources located in a country that is considered risky from an investment perspective may also warrant a low P/oz. For example, South American Silver (SAC) recently had its Malku Khota property in Bolivia nationalized (370Moz resource) and has now essentially been robbed of the resources it contained; in this case, there was a very good reason for SAC to have a very low P/oz prior to this event.

The one conclusion that we can draw from this data is that generally speaking, producers are given a higher P/oz number than the explorers. Here is the data again, this time in graphical format to demonstrate this point:

In the case of the three explorers that have unusually high P/oz values, part of the reason is that these companies are much closer to production than the others. We'll comment briefly on each:

• Huldra: They are fully funded into production which is expected in Q1-2013 at a rate of ~2Moz/year silver. They currently have a very small resource, but a high-grade resource in a safe jurisdiction (Canada). Based on the P/oz metric, it appears the market believes they'll discover a much larger resource in the near future... we'll see (I'm not a buyer at these prices).
• Tahoe: Is also in the process of building a mine... a massive one; once completed it will produce ~20Moz/year silver. Production is expected to commence in late 2013. However, there is country risk here (Guatemala)... Tahoe is currently experiencing opposition from the locals to this project... if you want to learn all about it, head over to IKN and search for Tahoe; the author of this blog has done an excellent job keeping investors informed of the reality on the ground for Tahoe (and it's not nearly as rosy as the management would have you believe). Although we haven't done an in-depth analysis of this company, on the surface it looks much too expensive to us given the country risk.
• MAG: Has a 44% interest in the Juanicipio joint venture with Fresnillo that looks to be a very promising property. It has high grades, reasonable capital costs, negative cash cost per ounce, and resides in a good jurisdiction (Mexico). This will very likely be a mine one day and Fresnillo will bear the majority of the construction cost. The only issue we are aware of is that MAG is currently experiencing some troubles with the locals (opposition to the mine). Again, if you want the truth about trouble at mines in South America, go to IKN, this time search for MAG; MAG's troubles are also covered nicely there. So long as the trouble with the locals can be resolved, the P/oz number here, although high, is likely warranted in our opinion.

Orko is interesting in that it provides a benchmark P/oz value since it is currently being acquired by First Majestic at a price of $1.33/oz (based on today's share price). Although it is just one data point, this P/oz figure is something that all the other silver explorers can aspire to and possibly justify in a takeover situation.

We'll conclude with a comment on Aurcana. As our regular readers know, Aurcana has been a top pick of ours since we started the site. Out of the producers, Aurcana ranks 17/22 in terms of the P/oz metric, making Aurcana appear undervalued on yet another metric. We would argue that a P/oz similar to what Fortuna, Alexco, and Hecla have would be more appropriate (there are Aurcana's closest peers in our opinion). Especially since we expect Aurcana to pass both Fortuna and Alexco this year in terms of silver production. What may be holding them back right now is uncertainty around the ramp-up of production at Shafter and a desire for a larger resource number there. The good news is we expect both of these items to be addressed this year and hopefully that will be reflected in the share price. Simply taking the average P/oz for those three companies ($4.47/oz) and dividing by the P/oz value for Aurcana ($2.02/oz) gives a multiple of 2.2x or a share price target of $2.07. Or, if you prefer to use the average P/oz for all producers ($4.35/oz), you get a share price target of $2.02.