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Price Performance (1-year)
Portfolio Summary
Operates an active mine, and multiple development/ exploration projects in Peru. Peru is the third largest silver producer in the world
The Nueva Recuperada project is comprised of the producing Tangana mine with a 720 tpd processing plant, and the advanced-stage Plata mining unit, and four exploration projects (Tangana Brownfield, Plata Brownfield, Victoria HS Gold, and Red Silver).
Silver X acquired Nueva Recuperada in 2017, and added the high-grade Tangana asset from Pan American Silver (NYSE: PAS) in 2018
Located in the Huacholcolpa mining district, 225 km southeast of Lima, the fully-permitted project covers 20,472 hectares
Access to water (Pallcapampa river) and electricity
Nueva Recuperada has hosted artisanal miners for over 60 years. The previous owner, Compañía de Minas Buenaventura (NYSE: BVN / MCAP: $3.3B), produced 3.8 Mt of ore from 1957 to 2013.
Mineralization, Resources and PEA
The property hosts low to intermediate sulfidation epithermal vein deposits. Prior exploration has delineated 200+ targets, and 500+ outcrop veins, potentially hosting medium to high-grade silver-rich polymetallic mineralization. The current resource, totaling 208 Moz AgEq, is distributed across the producing TMU, and the advanced-stage PMU. Silver is the dominant metal, accounting for 52% of the total value of the contained metals.
Extensive vein fields with 200+ targets, and 500+ outcrop veins
NI 43-101 compliant resources totaling 208 Moz AgEq
The TMU accounts for approximately 70% of the current resource estimate. Four veins account for the majority of the resources at the TMU
We believe resources remain open at depth
A Preliminary Economic Assessment (PEA) focused solely on the TMU, based on a 12-year mine life, and average annual production of 4.2 Moz AgEq, yielded promising results. We believe the study was conservative, as it utilized <40% of the project’s resources.
Given the existing infrastructure in place, the project has a low initial CAPEX of $61M, which involves expanding the processing plant to 1,500 tpd
AT-NPV10% of $175M, and a high AT-IRR of 39%, using $23/oz silver vs the current spot price of $31/oz
Production
The company commenced commercial production in January 2023. Silver X is currently mining the Tangana Main vein area, which represents just 5% of the TMU resource estimate.
Over 200 veins and splits have been identified at TMU, but only 18 were included in the PEA, highlighting the growth potential at Tangana
In 2024 (9M), ore processed was up 41% YoY to 129 Kt. The average grade was up 7% YoY to 255 gpt AgEq
Production was up 34% YoY to 0.84 Moz AgEq. Cash costs were down 11% YoY to $18/oz AgEq
In 2023, production was up 3% YoY to 0.92 Moz Ag Eq.
In Q3-2024, production declined 9% QoQ, and cash costs increased 14% QoQ, due to lower grades
Production and cash costs improved significantly on a YoY basis
We believe there is significant resource expansion potential, with the property’s three main units (Tangana, Plata, and Red Silver) hosting multiple veins not factored into the current resource
The company’s vision is to expand annual production to over 6 Moz of AgEq within the next few years. Immediate plans include:
Financials
In 2023, revenue was up 13% YoY, and net losses were down 32% YoY, driven by higher production, and metal prices
In 2024 (9M), revenue was up 41% YoY, EBITDA turned positive, and net losses were down 16% YoY, driven by higher production and metal prices, and lower cash costs
Margins improved across the board
Although funds flow from operations increased, free cash flows declined primarily due to increased investment in mining equipment to support higher production
While the company has limited debt, working capital was negative at the end of Q3-2024, primarily due to $20M in payables
AGX is currently pursuing a C$3M equity financing
Although AGX’s negative working capital is a concern, we believe it should be able to extend payables, and/or secure debt financing this year, given its strong production growth plan
Comparables Valuation
Junior silver producers are trading at $1.5/oz. AGX is trading at just $0.30/oz, an 80% discount
Applying the sector average multiple of $1.5/oz, we arrived at a fair value estimate of C$1.21/share
DCF Valuation
Our DCF valuation is C$0.75/share
Our valuation is highly sensitive to metal prices
We forecast a significant boost in revenue and EPS for 2025, driven by AGX’s ability to ramp up production
We are resuming coverage with a BUY rating, and a fair value estimate of C$0.98/share (the average of our DCF and comparables valuations). We believe AGX offers a compelling value proposition, driven by its substantial resource growth, ability to ramp up production quickly, and significant discount to peer valuations. 2024 marked a turning point for the company, with EBITDA turning positive. We anticipate a significant boost in revenue and EPS in 2025.
Risks
Assigning a risk rating of 4 (Speculative)
We believe the company is exposed to the following key risks:
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