SilverCrest Metals Investors Need to Be Cautious

Junior silver mining company SilverCrest Metals [stock_market_widget type="inline" template="generic" color="default" assets="SIL.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] is yet to begin commercial production at the Las Chispas mine, but its stock has soared tremendously in 2019. Shares of the company had more than doubled at one point last month when silver prices hit multi-year highs before pulling back after the industrial metal lost some of its momentum.

But the massive rally in SilverCrest stock leads to a pertinent question – is the stock a buy given that it doesn’t produce any silver yet? Let’s find out.

Production at SilverCrest Is Still Some Time Away

SilverCrest’s flagship Las Chispas project, located in the state of Sonora in Mexico, was recently given the green light by the Secretaria de Medio Ambiente y Recuros Naturales. SilverCrest Metals now has the operating permit to the mine and it has gained the conditional approval to an underground mine with 3,000 tons per day of maximum capacity.

SilverCrest can also construct a conventional processing facility, dry stack tailings, and underground backfill at the Las Chispas mine thanks to the operational permit that it has received. In the words of CEO N. Eric Fier:

The MIA should enable SilverCrest to have all major operating permits in hand ahead of our scheduled construction timeline. With the anticipated completion of a successful Feasibility Study in H1, 2020, the Company is well-positioned to project finance and begin construction activities in H2, 2020.

The operating permit received by Las Chispas will hold good for 14 years through 2033.

But what’s clear from the permit is that we might not see production at Las Chispas for at least another couple of years, though it might take longer than that depending on the pace of the construction.

Attractive Long-term Potential

SilverCrest Metals could do well in the long run considering the potential of the Las Chispas mine. According to the September 2018 resource summary, Las Chispas contained more than 511,000 ounces of gold and more than 48 million ounces of silver.

On a silver equivalent basis, Las Chispas has more than 86.7 million ounces of resources. What’s more, SilverCrest could generate impressive production at low costs as Las Chispas has a history of high grades. According to historical production facts cited by the company:

From public information, the Las Chispas mill production between 1908 through 1911 was approximately 25,000 tonnes grading 35 gpt gold and 4,500 gpt silver totalling an estimated 25,000 ounces of gold and 3.2 million ounces of silver.

If SilverCrest continues to enjoy such impressive grades at the mine when it begins its own production, it could be a solid stock pick because of potentially strong production and low costs.

However, with production still a few years away, anyone betting on SilverCrest right now will have to carefully watch silver price trends because the stock’s performance will depend on the same until the time it begins to deliver actual production.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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