VSA Capital Market Movers – The Start of Silver Season

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The Newest Silver Producer in the World


Guanajuato Silver Company Ltd (CVE:GSVR) has begun concentrate sales from El Cubo mill in Guanajuato, Mexico, on time and on budget having only closed the acquisition in April 2021. We expect GSVR to ramp up production to over 2.0mnoz AgEqpa for 2022F, achieving LoM cash operating costs of around US$10/oz. This implies the potential for annual operating cash flow generation of over US$28mpa which will provide ample funding for district scale exploration drilling.




Near Term Mine Life Extension


The company owns two past producing silver mines in the prolific Guanajuato Mining District in Mexico, the world’s largest silver producer. The current resource base of 27.5mnoz AgEq at a high grade of 414g/t AgEq reflects the last resource published by Endeavour Silver (the vendors of El Cubo) in 2016, less subsequent production and is not reflective of the change in mining method which will open up previously overlooked veins. We expect that this combined with underground drilling will extend the mine life to a multi decade operation. Secondly, El Cubo mill will initially treat stockpiled ore at El Pinguico where despite a high-grade operation running historically, no modern drilling has taken place. This offers near term potential to quickly add to mill throughput and is not reflected in our model.




Exciting District Scale Exploration Potential


Having established a 7,800ha package of claims, GSVR is the largest claim holder in the Guanajuato district, and we see significant exploration potential, funded by cashflow from the current operations beyond the brownfield type exploration at El Cubo and El Pinguico. Given the current market cap of US$91m, we believe that greenfield exploration has the potential to provide material catalysts for the stock price and with the potential to tap into the famed Veta Madre, we see significant potential for high grade discoveries of scale.




Target Price and Recommendation


We believe that the market remains focused on the 2021 PEA valuation which focused on the current compliant resources, however, our blended DCF and EV/Resource valuation begins to show the rerating potential as GSVR demonstrates a long-life operation. With the DCF sensitive to both silver prices and additional years of operation we expect drilling success to rapidly change the perception of GSVR as a project with a finite life.

We initiate coverage with a Buy recommendation and target price of C$1.10/sh implying 97% upside.




Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]


VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com


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