Buy Silver Bull Today, Get $2 Billion Of Free Zinc
By Lazarus Investment Partners
Dec. 1, 2014 7:15 AM ET
Summary
* Silver Bull is an exceedingly rare asset: a huge resource in a mining-friendly area with great infrastructure.
*As zinc prices climb higher and the forecast calls for a supply deficit, Silver Bull is complementing its silver story by advancing the company’s 2.2 billion pounds of zinc.
*M&A in the mining sector has been perking up, and we think Silver Bull is an extremely attractive company for an acquirer to own.
* Silver Bull offers incredible optionality on higher silver prices, although the reversal in silver this year is a significant challenge to the company.
* We provide an interview with the company’s CEO.
Introduction. We believe that Silver Bull (NYSEMKT:SVBL; TSX SVB) has one of the single largest and most attractive silver and zinc resources on the planet. The company's Sierra Mojada project is estimated to contain 164 million ounces of silver, 2.2 billion pounds of zinc, and hundreds of millions of pounds of lead and copper, with further upside potential in surrounding parcels. It is in a mining friendly jurisdiction in Mexico with a skilled local workforce and great infrastructure, including grid power, water, paved roads, and a railway to site. Silver Bull has a strong balance sheet with no near-term financing needs. Management is advancing the project as far as it can with the intention of selling it to or partnering with a larger company who can fund the mine into production.
The company's presentation highlights an after-tax IRR for the project of 23.1% and an after-tax NPV of $464 million. These numbers need to be adjusted significantly for the latest movements in metals prices, but even so, the project's NPV is still dramatically higher than the company's market cap of just $28 million. Weak silver prices have made our investment in Silver Bull frustrating, but we still love the optionality it offers on a rebound in silver, as well as its exposure to a massive zinc resource.
For additional background on the company, please see our article from last December and our update in July. We will use the balance of this article to summarize developments at the company and share an update conversation with Tim Barry, Silver Bull's CEO.
Pivot to Zinc. The elephant in the room for Silver Bull has been declining silver prices. When we wrote about the company this past summer, silver was up modestly for the year. It has since given up those gains and is now down for the year. Silver hit a high of $22 an ounce at the beginning of the year, and now trades at around $16.50. True to its name, Silver Bull's flagship project, at least as previously conceived, was heavily focused on silver production (72% silver, 28% zinc). Yes, even at $16 silver the project has a double digit IRR, but the drop in silver prices dampens both the economics of the project as well as the acquisition urgency of larger miners.
In September Silver Bull announced that following a 28% rise in zinc prices, it would be re-examining the zinc potential of its resource. In the interview below with Silver Bull's CEO, he explains what the company will be doing differently as it pivots to zinc. In our opinion, this is a smart, if not obvious move. The company has long been undervalued, getting no credit for its zinc assets. Interestingly, before Sierra Mojada was presented as a silver mine, engineers thought to develop it as a zinc mine. With zinc prices climbing and analysts predicting a worsening zinc deficit ahead, it makes sense to highlight the zinc aspects of the Silver Bull story. There seems to be little downside to doing so, since most of the mine prep is the same whether it's a zinc mine or a silver mine.
Silver Bull is Still for Silver Bulls. We are disappointed that the long-awaited bull market in silver is yet to return. The silver lining, if there ever was an apt time to use that phrase, is that the company's silver is not going anywhere. We see huge optionality in Silver Bull on higher silver prices. In the past 5 years silver traded close to $50, reaching a high of $48.55. At $20 silver, the Sierra Mojada project's NPV is over 10x Silver Bull's market cap. At $30 silver - not even double today's spot price - the NPV is about 27x the market cap.
By Lazarus Investment Partners
Dec. 1, 2014 7:15 AM ET
Summary
* Silver Bull is an exceedingly rare asset: a huge resource in a mining-friendly area with great infrastructure.
*As zinc prices climb higher and the forecast calls for a supply deficit, Silver Bull is complementing its silver story by advancing the company’s 2.2 billion pounds of zinc.
*M&A in the mining sector has been perking up, and we think Silver Bull is an extremely attractive company for an acquirer to own.
* Silver Bull offers incredible optionality on higher silver prices, although the reversal in silver this year is a significant challenge to the company.
* We provide an interview with the company’s CEO.
Introduction. We believe that Silver Bull (NYSEMKT:SVBL; TSX SVB) has one of the single largest and most attractive silver and zinc resources on the planet. The company's Sierra Mojada project is estimated to contain 164 million ounces of silver, 2.2 billion pounds of zinc, and hundreds of millions of pounds of lead and copper, with further upside potential in surrounding parcels. It is in a mining friendly jurisdiction in Mexico with a skilled local workforce and great infrastructure, including grid power, water, paved roads, and a railway to site. Silver Bull has a strong balance sheet with no near-term financing needs. Management is advancing the project as far as it can with the intention of selling it to or partnering with a larger company who can fund the mine into production.
The company's presentation highlights an after-tax IRR for the project of 23.1% and an after-tax NPV of $464 million. These numbers need to be adjusted significantly for the latest movements in metals prices, but even so, the project's NPV is still dramatically higher than the company's market cap of just $28 million. Weak silver prices have made our investment in Silver Bull frustrating, but we still love the optionality it offers on a rebound in silver, as well as its exposure to a massive zinc resource.
For additional background on the company, please see our article from last December and our update in July. We will use the balance of this article to summarize developments at the company and share an update conversation with Tim Barry, Silver Bull's CEO.
Pivot to Zinc. The elephant in the room for Silver Bull has been declining silver prices. When we wrote about the company this past summer, silver was up modestly for the year. It has since given up those gains and is now down for the year. Silver hit a high of $22 an ounce at the beginning of the year, and now trades at around $16.50. True to its name, Silver Bull's flagship project, at least as previously conceived, was heavily focused on silver production (72% silver, 28% zinc). Yes, even at $16 silver the project has a double digit IRR, but the drop in silver prices dampens both the economics of the project as well as the acquisition urgency of larger miners.
In September Silver Bull announced that following a 28% rise in zinc prices, it would be re-examining the zinc potential of its resource. In the interview below with Silver Bull's CEO, he explains what the company will be doing differently as it pivots to zinc. In our opinion, this is a smart, if not obvious move. The company has long been undervalued, getting no credit for its zinc assets. Interestingly, before Sierra Mojada was presented as a silver mine, engineers thought to develop it as a zinc mine. With zinc prices climbing and analysts predicting a worsening zinc deficit ahead, it makes sense to highlight the zinc aspects of the Silver Bull story. There seems to be little downside to doing so, since most of the mine prep is the same whether it's a zinc mine or a silver mine.
Silver Bull is Still for Silver Bulls. We are disappointed that the long-awaited bull market in silver is yet to return. The silver lining, if there ever was an apt time to use that phrase, is that the company's silver is not going anywhere. We see huge optionality in Silver Bull on higher silver prices. In the past 5 years silver traded close to $50, reaching a high of $48.55. At $20 silver, the Sierra Mojada project's NPV is over 10x Silver Bull's market cap. At $30 silver - not even double today's spot price - the NPV is about 27x the market cap.
