Sep 27, 2010

Bear Creek Mining: The Next Generation Senior Silver Producer

Despite the 20% increase in the price of silver and a corresponding run up in silver mining companies, bargains can still be found in the smaller juniors and advanced stage exploration companies. The current valuation attached to Bear Creek Mining(BCM.TO) proves this point. Bear creek’s future keeps getting brighter as they increase total resources and more importantly 2p reserves at a furious pace with plenty of drilling still on the horizon.
About Bear Creek: Mining operations are focused on the most silver rich nation, Peru, and host to the world class Corani Project in addition to their Santa Ana operation, both having vast upside potential. Bear Creek will have their first mine on-line (Santa Ana in 2012). There are many things that separates bear creek from their peers, most notably the speed at which BCM will go from exploration to a 20-22m ounce producer and the low capital requirements needed to bring Santa Ana to commercial production.
The Santa Ana Project – Feasibility study is currently nearing completion but due to the low initial capital requirements, Santa Ana will be in production in 2012. Though not nearly as lucrative as their flagship Corani, Santa Ana is a great first step in building taking bear creek from an exploration company to a silver mining juggernaut.
·         Internal rate return in excess of 75% due to extraordinarily low capital requirements – $51m to construct the mine and cash costs of $7.50. Currently expected to have a 12-14 year mine life with an annual production of 4.5-5.0m ounces.
The Corani Project – In addition to being one of the largest undeveloped silver mine, the Corani mine, like Santa Ana also requires minimal capital investment relative to the size and annual production (15-17m oz/year).
·         Proven Reserves – 258m oz Silver(and an additional 100m in Silver resource), 2.9B of lead and 1.4B oz of Zinc. Total silver equivalent ounces, however, up 2P reserves to nearly 500m oz. This trumps numerous top tier silver miners i.e Hecla Mining among others.
·         Sports a Incredibly Internal rate of Return (Click here to view the calculations), in excess of 50% (54%) as initial capital outlays will be less than 350m. net of Bi-products, cash costs will be approximately $1.15/oz.
·         The Initial mine life was 27 years but Bear Creek will maximize the mill throughput to reduce the life of mine to 20 years. This will increase annual production by several million ounces such that average annual production will be between 15-18m ounces.
·  Each share has 7.6 ounces of silver resource and nearly 3.5 ounces of proven reserves.
· An EV/NAV ratio of .21 (at $21/oz) – fully valued is 1.
· Cash Flow Valuation of $19/Share using a price deck of $21/ounce and a costs of capital of 13.5%.
Though Bear Creek can finance all their capital requirements and exploration budget, Bear Creek looks like a likely takeover target. To top all this off, Bear Creek latest resource update saw total resources at Santa Ana climb 39% with more drill results on the way. Drill results and Resources/Reserve updates will act as catalysts for the next year or so as the Santa Ana mine is being constructed. Keep in mind many drilling results will be coming out over the next two years at Corani, which I believe will add a substantial amount of 2p reserves and possibly guide annual production even higher. Feel free to message me for the valuation spreadsheet and internal rate of return calculations.
Short Term Price Target (6-18 months) - $10.50
Long term Price Target (2-3 years)- $25

No comments:

Post a Comment