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Silver Seeker #86: Silver stocks have bottomed, whereto from here?

This was a pivotal week for the precious metals, and it appears that the eleven/twelve-month downtrend has finally been broken. Ideally, we would like to see gold breach $1,810 and $1,830/oz soon, although it is more likely that gold tests $1,800/oz several times before breaching that level and moving higher on solid volume. Gold got smashed Friday but this isn’t entirely unexpected. However, the mining stocks have been acting very strong over the last two weeks, moving higher on days gold was down [and only marginally lower on Friday, when gold was smashed] and exploding higher on Wednesday and Thursday this week when gold was up. The highly manipulated/doctored CPI increased 5.40% year/year, illustrating inflation is accelerating [albeit marginally]. For those of us in the real world, the year-over-year increase in consumer prices is closer to 15-10% than it is to 5.0%.

$ABRA, $AYA, $BRC, $EGO, $AG, $FTCO, $FSM, $GCM, $HL, $NCM, $SVM, $TFPM, $VGCX, $WDO

AbraSilver Resource Corp: announce additional significant drill results from the latest diamond drill holes of the Company’s ongoing Phase II drill program at its Diablillos property. Drill result highlights include:

  • 39.5m @ 200.5 g/t Ag and 0.45 g/t Au
  • 6m @ 709 g/t Ag and 1.14 g/t Au
  • 2m @ 39 g/t Ag and 3.23 g/t Au
  • 4.5m @ 34.1 g/t Ag and 3.69 g/t Au
  • 6m @ 26.5 g/t Ag and 2.32 g/t Au
  • 6m @ 28.4 g/t Ag and 3.24 g/t Au
  • 15.5m @ 128 g/t Ag and 2.09 g/t Au
  • 17.5m @ 25.3 g/t Ag and 2.64 g/t Au
  • 6m @ 25.8 g/t Ag and 4.82 g/t Au

Aya Gold & Silver: Reported Q3, 2021 silver production, though it is not that meaningful as the Company is and will be expanding the low-cost Zgounder silver mine in Morocco, which will propel it into the ranks of mid-tier silver producers. In Q3, the Company produced 338.6k oz Ag @ 242 g/t. This marks a 198% increase relative to the comparable period in 2020. The Company also increased 2021 production guidance to 1.55m oz Ag vs. initial guidance of 1.20m oz Ag or a 29% increase. Silver recoveries increased dramatically year-over-year to 81% vs. 63% in Q3 2020. As the capital projects are advanced and completed, silver grades should increase dramatically given the 2020/21 world-class exploration results. The FS on the Zgounder expansion will be completed before year-end and under-taken in 2022/2023, with completion likely by late-2023/mid-2024. The expansion project will increase capacity to 2.7ktpd, resulting in silver production of approx. 6m oz Ag, although if the updated MRE increases reserve and resource grades, future production could exceed 6m oz p.a. Aya hit two out of the top 5 and 17 out of the top 50 intercepts amongst primary silver projects in 2020/21 including:

  • 14.4m @ 3,043 g/t Ag
  • 6.5m @ 6,437 g/t
  • 4m @ 9,346 g/t
  • 7.2m @ 4,944 g/t
  • 12m @ 2,417 g/t

Aya will likely more than double silver resources in the updated MRE in 2021 to more than 100m oz Ag @ >300 g/t, from 44.41m oz @ 282 g/t currently.

Blackrock Silver: Announced additional high-grade silver and gold intercepts from its core and RC drilling program on the Tonopah West project. These new results demonstrate the continuity of high-grade mineralization over an 800m-by-800m area that will form the basis of the upcoming maiden resource on the DPB target. In conjunction with drilling done to date, these results validate the Company's understanding of the structural orientation and confirm continuity of mineralization of the vein swarm at DPB. Highlights from this release include;

  • 4.1m @ 1,120 g/t Ag and 9.07 g/t Au
  • 0.70m @ 445 g/t Ag and 5.61 g/t Au
  • 1.5m @ 592 g/t Ag and 6.50 g/t Au
  • 4.6m @ 275 g/t Ag and 3.11 g/t Au
  • 2.4m @ 301 g/t Ag and 4.04 g/t Au

The maiden MRE is expected in Q1, 2022. The resource definition program is winding down and nearing completion, with one core rig having already been decommissioned. Fifteen infill core holes have assays pending from the DPB target area, and nine RC drill holes are pending from the step-out program. Two core holes are currently in process, and eight remain to be completed to finish the resource drill campaign at DPB.

Eldorado Gold: The Company reported Q3 2021 production results. In Q3, Eldorado produced 125.46k oz, an 8% increase from 116k oz in Q2. Due to solid production, the Company is reviewing full-year 2021 production guidance and will provide an update when the Company reports Q3 earnings.

First Majestic Silver: The Company reported record AgEq production of 7.3m oz in Q3, consisting of 3.3m oz Ag and 54.53k oz Au. The Company also held back 1.4m oz Ag in inventory at quarter-end in anticipation of selling it at higher prices in Q4. Through the first nine months of 2021, the Company has produced 9.5m oz Ag and 125k oz Au. During the quarter, the Company also started stockpiling higher-grade material at Ermitano, totaling 45,271 tons of mineralized material grading 4 g/t Au and 41 g/t Ag. Also, during the quarter, First Majestic completed the structural fill for the tailing on TSF2 and installed approx. 25% of the new liner at Jerritt Canyon. The annual maintenance overhaul for the dual roasters was near completion at the end of Q3. As a result, approx. 30k tons of ore were added to surface stockpiles which are expected to be processed in Q4. Over the next couple of quarters, silver production at San Dimas should increase substantially as a major high-grade area within the Jessica vein of the Central block was brought online. Over the medium-term, higher production [7.5-8.5m oz p.a.] should continue from San Dimas as it expands capacity to 3ktpd.

Fortitude Gold: Announced exploration drill results from its 2021 Golden Mile delineation program. Highlights include:

  • 24.38m @ 1.69 g/t Au
  • 22.86m @ 1.63 g/t Au
  • 6.10m @ 5.93 g/t Au
  • 16.76m @ 3.31 g/t Au
  • 9.14m @ 1.94 g/t Au

This is very encouraging for Fortitude and its growth plans beyond the Isabella Pearl mine. Golden Mile will be the next development project to be undertaken by the Company. Fortitude expects to provide an initial MRE at Golden Mile before year-end. Once the Company has conducted the proper due diligence [NOT a PFS/FS], the goal is making a production decision at the earliest possible point. Fortitude is having success regarding exploration in and around Isabella Pearl, from which it pays a highly lucrative dividend. Dividend payments are unlikely to be hiked [unless the gold price breaches $2,000-$2,100/oz on a sustained basis] until after Golden Mile is developed, after which point, we believe the Company will increase the dividend substantially.

Fortuna Silver: The Company reported record production in Q3 of 87.95k AuEq oz. Record production was driven by the addition of Yaramoko, part of the Roxgold transaction, which closed in early Q3. In addition, production was impacted at Lindero [though nothing like Q2]. Fortuna is in the midst of a growth spurt as gold production has increased 411% over Q3 2020, which has thus far been driven by achieving commercial production at Lindero and the addition of the producing Yaramoko mine. Higher output at Lindero should be seen in Q4 and through most or all of 2022. Yaramoko should also drive near-term growth as the average gold head grade was below plan for the quarter. In addition, Fortuna has commenced construction [early works] at its next growth driver, Seguela, set to come online in early 2023. The addition of Seguela will push gold equivalent production to 550-600k+ oz p.a. [as long as silver production can be maintained] We wouldn't be shocked to see Fortuna make another acquisition in the near future, though for this to occur, it would likely have to be producing mine and Fortuna's cost of equity fall, considerably.

Gran Colombia: Announced today, it produced 17.2k oz Au at its Segovia Operations in September 2021, bringing the total gold production for Q3 to 49.8k oz compared with 51.55k oz from Segovia in Q3 2020. The Company also produced 52.38k oz Ag at Segovia in the third quarter of 2021, up from 47.56k oz Ag last year's third quarter. For the first nine months of 2021, Segovia's gold and silver production totaled 151.1k oz and 164.3k oz, up from 146.28k oz Au and 134.82k oz Ag in the first nine months of 2020. While the high-grade Segovia mine continues to produce 195-210k oz Au, the value waiting to be unlocked lies in the Toroparu project. While initial capital costs are moderate, Gran Colombia generated robust cash flow, has significantly deleveraged its balance sheet, and has investments worth a pretty penny. The Company has also completed a notes offering of $300m [due 2026]. The proceeds will be allocated towards the capital costs at Toroparu and pre-pay the Company's gold-linked notes.

Hecla Mining: The largest silver producer in the US announced Q3 production results. In Q3, the Company produced 2.7m oz Ag, which was lower due to lower grades at Greens Creek, partially offset by higher production from Lucky Friday. Gold production totaled 42.2k oz, in line with the comparable period in 2020. At quarter-end, Hecla's cash position stood at $190m.

Newcrest Mining: The Red Chris Cave PFS confirmed tier-I asset potential. The IRR and NPV are estimated at 17% and C$2.3B over an initial 31-year mine life. Projected average production from the Macro Block 1 in 2029-2034 is 316k oz. Au and 80ktpa Cu. The cost structure is impressive at negative C$180/oz (-US$144m). The feasibility study is expected to be completed in 2H 2023. Red Chris is currently an open-pit operation, but the technical studies being undertaken are for unlocking the underground portion of the asset by leveraging Newcrest's block caving expertise [a low-cost mining method]. Newcrest also announced the PFS for Havieron. It is a smaller operation but has expansion potential. Based on a 2Mtpa operation, average annual gold production is estimated at 160k oz. Au over an initial 9-year mine life @ AISC of $743/oz. The PFS is based solely on reserves (14Mt) and excludes the 37Mt of Inferred resources. The PFS identified that upon successful resource conversion, it could allow for a 3Mtpa operation or approx. 240k oz of average annual gold production. The FS underway will assess a production rate of 3Mtpa and higher. The deposit is open laterally and at depth.  

Silvercorp: Report results from its exploration programs at the DCG mine. Extensive exploration drilling and tunneling are ongoing at the DCG mine, and all other mines at the Ying Mining District, China. 29,010m have been drilled from March 1st 2020-September 30th 2021 from 207 diamond drill holes [117 underground and 90 surface]. Assays for 164 holes have been received with 110 intercepting mineralization. Highlights include:

  • 5.46m @ 78 g/t Ag and 5.66 g/t Au.
  • 3.28m @ 15 g/t Ag and 7.17 g/t Au.
  • 5.74m @ 4 g/t Ag and 2.92 g/t Au.
  • 2.74m @ 51 g/t Ag and 4.67 g/t Au.
  • 1.47m @ 19 g/t Ag and 5.07 g/t Au.
  • 1.66m @ 68 g/t Ag, 15.48% Pb, 0.50% Zn and 0.16% Cu.
  • 0.98m @ 620 g/t Ag, 0.90% Pb, and 0.09 g/t Au.
  • 0.63m @ 750 g/t Ag, 6.33% Pb + Zn, 1.55 g/t Au, and 0.08% Cu.
  • 1.18m @ 2,427 g/t Ag, 0.63 g/t Au, and 7.26% Cu.
  • 1.17m @ 54 g/t Ag, 19.17 g/t Au
  • 0.93m @ 114 g/t Ag and 2.88 g/t Au

Triple Flag Precious Metals: The newest publicly traded mid-tier royalty and streaming company announced Q3 sales, an increase of 62% year-over-year. In Q3, Triple Flag generated sales of 20.75k AuEq oz, generating revenue of $37.1m. However, Triple Flag also reduced full-year guidance for attributable production of 80-83k AuEq oz [down from 83-87k oz] due to ongoing CV-19 related supply chain issues at its ATO stream. Attributable production will see a step-up in attributable production in 2022 and average 100-110k AuEq oz over the next five and ten years. The Company also received approval to establish an NCIB whereby it can buy back up to 2m shares of common stock [of the 156.2m shares on issue]. In our view, because Sandstorm's 30% interest in Hot Maden and a 2% NSR royalty is worth approx. 55-60% of the Company's NAV [concentration risk]. Without consummating new, large deals, Osisko Gold Royalties, and Triple Flag present better value propositions. 

Victoria Gold: One of the newest Canadian mining operations has record quarterly gold production of 55.83k oz, which, if annualized, is equivalent to the planned run-rate of 205-220k oz. While this was an excellent quarter likely [production and likely cost-wise as well], it isn't enough to achieve the annual run-rate just yet as production is lower during the first two quarters of the year due to the rainy season resulting in lower stacked tons. Victoria will address this in 2022 and begin project 250K, targeted at year-round stacking and higher output [of approx. 250k oz] by 2023. Furthermore, there is additional upside if and when the Raven zone is included in the mine plan. It will undoubtedly result in higher production due to significantly higher average gold grades. We believe Victoria could also set record low quarterly AISC due to higher production and the lowest strip ratio year-to-date in 2021 at 1.2 [waste to ore ~ lower the better/cheaper], down from 1.5 in Q2 2021 and 2.9 In the first quarter.

Wesdome Gold Mines: Announced Q3 production of 29.34k oz Au, including 5.5k oz from the restart of the Kiena mine. Ramping up Kiena in 2022 will significantly increase companywide production and drastically lower all-in sustaining costs (AISC) as AISC at Kiena is projected to be $680/oz. Although it's very high-grade, the Eagle River mine has an AISC profile of $950-$1,050/oz. The transformational addition of Kiena is largely already priced into the stock price. Still, there remains significant upside at Kiena to increase average annual production and extend the mine life. The Eagle River underground mine was 20% lower relative to Q2, although it was expected due to weeks of scheduled downtime.

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