High-flying Santacruz Silver Mining is getting attention as it moves to develop three silver mines in Mexico. The first one is due to start in 2013.
Santacruz Silver Mining Ltd. (TSX: V.SCZ, Stock Forum) is on course to begin commercial production at its high-grade Rosario silver mine by the first quarter of 2013.
Located in San Luis Potosi, in central Mexico, Rosario is the first of three mines that the company is planning to develop in the next three years. The other two are the San Felipe in Hermosillo, Sonora, and Gavilanes in Durango.
In an interview with Stockhouse, Santacruz President and Chief Executive Officer Arturo Prestamo said the Vancouver-based company is hoping to position itself as a mid-tier silver producer, capable of bringing three high grade mines into production for under $100 million in capital expenditures.
“Getting Rosario into production is our main concern,’’ he said during a phone interview from Miami, Fla., where he was attending the Canaccord Genuity Global Resources Conference. “We want to be in production by the first quarter of 2013.”
If the company reaches its goals, it hopes to be producing up to 9.5 million ounces of silver-equivalent annually.
Santacruz is a company that gained a TSX Venture Exchange listing in April, 2012 when it engaged in a reverse takeover transaction with former capital pool company Forte Resources Inc. The amalgamation was announced ahead of a private placement offering – led by Canaccord Capital Corp. -- -that raised $20 million from the sale of shares that were priced at 90 cents.
According to regulatory filings, 13% of the shares are held by the company’s 43-year-old President and Chief Executive Officer Arturo Prestamo. Company management, together with family and friends together control about 45% of the shares.
Believing that the company can achieve those targets, two Canadian investment firms have placed a buy rating on the stock.
Jennings Capital Inc. has a 12-month target of $4 for Santacruz, which traded Wednesday at $2.20, leaving the company with a market cap of $149 million, based on 67.7 million shares outstanding.
The stock is up sharply from 80 cents in June, and trades in a 52-week range of $2.50 and 75 cents.
Canaccord Genuity also rates the stock as a speculative buy, with a one-year target of $4.65.
A 43-year-old accountant from Monterey, Prestamo said the company is aiming to have San Felipe in production by the end of 2014, with Gavilanes targeted for startup roughly one year later.
The budgeted capital expenditures for the three mines are as follows:
$12.5 million for Rosario.
$40 million for Gavilanes.
$45 million for San Felipe.
The most advanced of the three, Rosario currently hosts an inferred resource of 11.8 million ounces of silver equivalent.
As it readies Rosario for production, the company is currently targeting Gavilanes with an aggressive (6,000-metre) drilling program in the hope that it can outline 100 million ounces of silver.
Meanwhile, the junior has moved to gain more financial flexibility by arranging to amend the payment terms for the San Felipe project, after defining a 43-101-compliant resource of 45 million ounces of silver equivalent. Under a previous agreement, a US$38 million payment was previously due to Minera Hochschild Mexico S.A. de C.V. on April 1, 2013.
Under the new agreement, Santacruz paid US$4 million upon closing on October 9, 2012. A further US$16 million is payable on or before April 1, 2013, with the final US$18 million due by October 12, 2014.
The revised terms allow the company to fund part of the Felipe acquisition cost with cash flows from the Rosario project, Canaccord Genuity said in its report.
“We forecast operating cash flows of US$71 million for Santacruz from the first quarter of 2013 to the end of the third quarter of 2014,” Canaccord analyst Nicholas Campbell said in the report.
Campbell said he is valuing the stock based on a peak silver price estimate of US$40 an ounce. Silver was trading this week at US$33.20.
For its part, Jennings Capital says it likes SantaCruz for its near-term cash flow potential, solid pipeline of growth prospects, and experienced management team. “We expect operations to run as smoothly as possible, due to the experience of the chief operating officer [Francisco Ramos] and his team who have previously built four mines in time and within or under budget.’’
Jennings said it expects Rosario to produce 1.3 million ounces of silver annually for a total cash cost of $8.69 per ounce. San Felipe is targeted to produce at least 3.4 million ounces at a cost of $14.29 per ounce. However, the report indicates that it’s too early to make any production estimates for Gavilanes.
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