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Golden Arrow Resources: THE INVESTMENT CASE

Golden Arrow Resources' chief says Silver Standard combination marks step change for firm

"In one transaction, Golden Arrow has leapfrogged into producer status overnight...," said Grosso.
Golden Arrow Resources' chief says Silver Standard combination marks step change for firm
INVESTMENT OVERVIEW: GRG The Big Picture
Silver Standard and Golden Arrow's combination has taken effect

Golden Arrow Resources Corp (CVE:GRG) chief Joseph Grosso has lauded his firm's Argentinian joint venture with Silver Standard Resources (TSE:SSO), saying it's a "classic win-win" with benefits to both parties.

"In one transaction, Golden Arrow has leapfrogged into producer status overnight and secured itself a substantial part of the residual production value (and immediate share of the revenues) at Pirquitas and brought much closer the pipeline value of Chinchillas, which would otherwise have been a long and expensive slog to production," he said in a letter to shareholders.

Eighth largest silver mine....

The combination creates the eighth largest silver mine in the world with an 8-year mine life and output of 8.4 million silver equivalent ounces per year.

Golden Arrow might have been looking at years of financing and development to get its Chinchillas silver, lead , zinc site into production and throwing off cash, said Grosso.

But with the combination of Silver Standard's Pirquitas' mine, this has been short-circuited, he suggested.

Golden Arrow shall have an immediate share of Pirquitas revenues, much lower capex requirements and, hopefully, first production from Chinchillas in the second half of 2018, he said.

On Friday, it was confirmed that the combination would go ahead.

Silver Standard to be operator..

Silver Standard will be operator of the combined assets, with a 75% stake in the joint venture, while Golden Arrow will have a 25% stake.

Grosso notes that putting Chinchillas into production alone would likely have cost Golden Arrow in the range of US$300mln to US$350mln.

In contrast, construction of the Chinchillas operation will begin in the third quarter of 2017 with a total capex of US$81mln.

Golden Arrow will receive around US$15mln as a 25% share of the Pirquitas earnings since October 1, 2015.

In addition, Golden Arrow will receive 25% of profits from the substantial stockpile at Pirquitas, which has an estimated value of  $45-million to $60-million which will continue to be processed until Chinchillas start trucking its ore to Pirquitas.

A positive pre-feasibility study, also published Friday, envisaged a satellite open pit mining operation at Chinchillas with ore processing undertaken using the existing mill and concentrator facility at Silver Standard's Pirquitas, around 42km west of Chinchillas.

The PFS forecasted average annual silver-equivalent production of 8.4mln ounces over an eight-year period with "robust operating margins”.

The post-tax net present value, using a 5% discount rate and metal prices of US$19.50 an ounce silver, 95 cents per pound of lead and US$1 per pound of zinc, was put at US$178mln.

Plenty of upside...

On the upside, noted Grosso, the existing resource is confined so far to only 40 hectares of a block of about 2,000 hectares.

Work will be carried out with a view to proving up resources to enable the creation of satellite pits, he said.

"That in turn would auger well for the extension of mine life significantly beyond the currently planned eight years."

Chinchillas currently hosts mineral reserves of 11.7 million tonnes containing 58 million ounces of silver at a grade of 154 g/t, 310 million pounds of lead at a grade of 1.2% and 127 million pounds of zinc at a grade of 0.49%.

Golden Arrow shares added 5.63% to stand at $0.75 each on the day.



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