CENTRAL SOUTH AMERICA

SilverCrest ‘undervalued' analyst says after strong quarterly

It looks like SilverCrest won't be forced to tap markets to fund development and exploration, as cash costs drop and profits stay strong.

HALIFAX, NS (MINEWEB) - 

As cash continued to roll in on strong production from its Santa Elena silver-gold mine in Mexico, Canaccord analyst Nicholas Campbell reckoned SilverCrest Mines (TSX-V: SVL)  won't have to do an equity finance as it pushes ahead with a mine expansion. In a Canaccord overview of SilverCrest's latest quarter in its inhouse publication Morning Coffee Campbell is said to believe SilverCrest shares are undervalued, trading at about half the average valuation its producing peers are getting. (Or as Canaccord put it: SilverCrest goes for "0.33x P/NAV (5%, spot) and 2.4x 2013E CFPS, compared to the junior producer average of 0.68x P/NAV (5%, spot) and 7.3x 2013E CFPS.")

While it is not clear if SilverCrest intends to raise any cash on the market anytime soon, that it doesn't absolutely have to is a good thing as financing markets are widely acknowledged to be especially tough at the moment. SilverCrest plans to spend $20 million on expansion and exploration at Santa Elena this year, according to its quarterly filings. It is aiming to double metal production with new milling facilities and by adding an underground component to the open-pit Santa Elena mine. SilverCrest has projected costs of the expansion at $84 million, and said it expects to start construction of a CCD processing plant in the fourth quarter 2012.

Meantime Silvercrest is about 500 metres into underground development with plans for 1,500 metres of development this year. It wants to hit 1,000 tonnes per day from the underground operations by mid-2014, and start milling ore from its open-pit in the new CCD plant in January 2014.

Without the expansion SilverCrest would produce about 2.5 million ounces silver equivalent in 2015, according to the current mineplan. But with the expansion it would hit about 5.5 million ounces silver equivalent production, according to its projections. By way of comparison this year SilverCrest expects to churn out just shy of 2 million ounces silver equivalent.

In the second quarter SilverCrest's $34.9 million in cash and equivalents were down slightly from $36.5 million in the first quarter.

After releasing its second quarter results, SilverCrest's shareprice surged, up 16 percent to C$2.47 over two trading days, as of presstime.

Financials

SilverCrest produced 139,850 ounces silver and 8,584 ounces gold in the second quarter. It sold 124,739 ounces silver and 8,679 ounces gold. Cash costs dropped to $6.94 per ounce silver equivalent from $8.27 per ounce silver equivalent in the same quarter a year ago. Earnings were $9.2 million versus $800,000 a year ago on $16 million in revenue, up 87 percent.