Investment Analysis for Intelligent Investors from Fundamental Research Corp.
SilverCrest holds three silver-gold properties in Sonora, Mexico and one in Santa Ana, El Salvador.
A recently updated mineral resource estimate on the Santa Elena project in Mexico, increased indicated gold and silver resources by 150% and 173% respectively. Updated NI 41-101 resource estimates are: 339,600 oz gold, 11.93 million oz silver probable; 190,600 oz gold, 11.82 million oz silver indicated and; 116,235 oz gold, 7.98 million oz silver inferred.
Environmental Impact Assessment has been approved granting the right to develop and operate the Santa Elena mine.
The company intends to develop the Santa Elena mine as an open pit, heap leach operation, with potential to go underground.
In a best case scenario, and management’s plan, construction of the heap leach pads and tailings ponds will be completed prior to the summer rainy season and initial production will begin before the end of 2009.
Considering its current cash position, we believe, the company has to raise about US$17 - US$18 million in the next 3 to 4 months in order to commence production by the end of 2009.
Increased resource estimates led to an increase in our DCF valuation. However, comparables valuation dropped as the average EV/Resource ratio of its peers dropped from $2.08 to $1.16 per oz.
Based on our revised valuation models, and review of the company’s progress since our previous report, we reiterate our BUY rating, and maintain our fair value at $1.98. Although the comparables valuation has dropped, the DCF value has increased which shows that the company is progressing its projects in the right direction while the market continues to be volatile.