Worth Watching: Silver Mines Limited (ASX: SVL)
Silver Mines has a silver inventory of 144M oz of silver across three projects in New South Wales. In Australia, this is second only to South32’s Cannington Mine, which is an underground silver, lead, zinc mine in Northern Queensland.
The company has a strong, well regarded board, headed by Non-Exec. Chair Mr Keith Perrett. He has experience in the rural sector and government relations. MD Mr Anthony McClure is a geologist with experience in project management and financial services. Non-Exec. Mr Langworthy is also a geologist with experience in exploration and project development.
The Bowdens Silver Project is the largest of the three projects, with a resource of 88Mt @ 47.4g/t silver, 0.29% lead and 0.39% zinc for a total of 135Moz of silver or 182Moz of silver equivalent.
The market capitalisation of SVL at the time of writing is $65M, equivalent to $0.73/tonne of the Bowden resource. That does not seem much, given the company states that the project has “robust economics at current prices”.
Further, the Bowdens Silver Project is a very large and lightly explored area, with many additional silver, base metal and gold targets. In addition to further exploration at Bowdens, the company is fast-tracking completion of a feasibility study and government permitting.
Map Courtesy SVL
To put some perspective on the potential economics, the Bowdens resource has a silver equivalent grade of 64.4g/t, or 2.1oz/t. At the current silver price of USD17.89/oz, an in situ tonne is worth USD 37.50, or AUD49.00.
Given the resource starts at the surface, has a low strip ratio, and straightforward process circuit, it is quite feasible that such an operation would be profitable. Particularly given that the company is focusing on the high grade core of the deposit. This will result in a significantly higher head grade than that for the deposit overall. Recent drilling in the vicinity of the high grade core returned spectacular results up to 124m at 85g/t silver.
The long section below shows how well positioned the resource is. It also shows a superb intersection at depth that suggests there is much more to come from this deposit.
Plan Courtesy SVL
But the real attraction to me is its leverage against the silver price. In April 2011, the price hit USD52/oz. At that price, and the current exchange rate, a tonne would be worth AUD142. If it is profitable at AUD49.00/ tonne, it would make a fortune at the higher price. Any meaningful price rise would also offer an excellent opportunity for the company to fix the price through forward selling.
I will follow this article up with an article on the silver market. I like silver ahead of gold, although I have exposure to both, and will attempt to explain why.
My “Worth Watching” series is a brief review of companies that appeal to me. They are not based on in-depth research and are in no way a recommendation to buy or sell shares. The reader is advised to do their own research and/or consult with their broker.