SilverCrest Metals (SILV) Stock: A Low-Cost Silver Producer

Introduction

SilverCrest Metals (NYSE:SILV) is a low-cost silver producer in Mexico. It’s a very simple story. They recently ramped up production at their high-grade Las Chispas mine in Q1 2023. It’s a single-mine company. Q1 results were solid, with an AISC of $11.50 and a net profit of $27 million. They have $45 million in cash and $25 million in debt and will soon be debt free.

There are no significant red flags with this company other than location risk in Mexico. This is likely a long-life, low-cost mine that will be a cash flow machine.

My main worry is that they don’t have a lot of insiders. For this reason, they might get acquired by a larger company. I don’t want that outcome. Instead, I want them to be a shark and begin growing via acquisitions.

My other worry is that Mexico could either raise taxes/royalties or demand partial equity ownership of silver mines.

Of course, many things can go wrong, and usually do with PM miners. These investments are never slam dunks and go according to plan.

One thing I always like to point out is that investing in PM miners is speculating. We are gambling, since so many things can go wrong. Keep your allocations low and expect to lose money on some of your PM mining stocks. What we are really betting on is PM prices going higher. If silver prices rise, then SilverCrest will be in a strong position. If silver prices languish, then bad things can happen.

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Company Overview

SilverCrest Metals is ramping up production for their large silver/gold mine in Mexico. Las Chispas is a monster project. It has 6 miles of underground workings and 14 known veins. The resource size is 200 million oz (800 gpt silver equivalent including gold) and growing in size.

Their share price has blasted off from an initial spinout price of $0.15 to $5.89 today (38-bagger). They now have an FD market cap of $905 million. Amazingly, it’s still cheap. They don’t have a second mine to build, but Las Chispas is growing in size.

The economics of the project is excellent. The after-tax IRR was projected to be around 75%. The reason for the high IRR is low all-in costs (free cash flow) around $14 to $15 per oz. Plus, the capex was only $140 million to produce about 10 million oz. (silver equivalent, including gold). The head grade should be around 800 gpt (25 opt).

It is quite unusual for a company to build a mine and pay it off in less than one year. But that is the case with SilverCrest. Plus, they only have 153 million fully diluted shares, which is a tight share structure for a mid-tier producer. This is a strong company with very good management. Their strategy is to find and develop mines. Investors who got in early were very lucky. Some of them will get 100-bagger returns (15 cents x 100 = $15).

As silver prices rise, SilverCrest’s balance sheet is going to get very juicy, with a large amount of cash. They will likely pay out dividends and buy back shares. Plus, they will likely acquire another company. To say that they look strong is an understatement.

Company Info

Cash: $45 million

Debt: $25 million

Current Silver Resources: 200 million oz. (AGEQ)

Current Silver Production: 10 million oz. (AGEQ)

Current All-in Costs (breakeven): $15 per oz

Current FCF multiple: 9.5

Estimated Future Silver Reserves: 200 million oz. (AGEQ)

Estimated Future Silver Production: 10 million oz. (AGEQ)

Estimated Future Silver All-in Costs (breakeven): $20 per oz

Estimated Future FCF Multiple: 15

Scorecard (1 to 10)

Properties/Projects: 8

Costs/Grade/Economics: 8

People/Management: 8

Cash/Debt: 8

Location Risk: 6.5

Risk-Reward: 8

Upside Potential: 8

Production Growth Potential/Exploration: 8

Overall Rating: 8

Strengths/Positives

Low costs.

Good balance sheet.

Significant upside potential.

Strong management.

Pure silver play.

Strong brand name.

Risks/Red Flags

Dependence on higher PM prices (for large returns).

Location risk.

Could be acquired.

Speculation stock (high risk).

Estimated Future Valuation ($75 Silver)

Silver production estimate for the long term: 10 million oz.

Silver All-In Costs (break-even): $20 per oz.

10M oz. x ($75 – $20) = $550 million annual FCF (free cash flow).

$550 million x 15 (FCF multiplier) = $8.2 billion.

Current FD market cap: $905 million.

Upside potential: 800%.

Future Valuation Explained

This is an estimated return and will only occur if all assumptions are correct. A more likely outcome will be something less than this amount, although it is not crazy talk to expect silver to exceed $75 or the FCF multiple to reach 15.

My All-In Costs are the expected costs that will generate FCF.

I used a future FCF…