SilverCrest Mines Inc. (TSX:SVL; NYSE MKT:SVLC) is a Canadian precious metals producer headquartered in Vancouver, BC. SilverCrest’s flagship property is the 100%‐owned Santa Elena Mine, located 150 km northeast of Hermosillo, near Banamichi in the State of Sonora, México. The mine is a high‐grade, epithermal silver and gold producer, with an estimated life of mine of 8 years and operating cash costs of $11 per ounce of silver equivalent (55:1 Ag:Au) for the open pit heap leach and underground mine. SilverCrest anticipates that the new 3,000 tonnes per day conventional mill facility at the Santa Elena Mine should recover an average annual rate of 1.5 million ounces of silver and 32,800 ounces of gold over the current reserve. Major expansion and construction of the 3,000 tonnes per day conventional mill facility is nearing completion and is expected to significantly increase metals production at the Santa Elena Mine (open pit and underground) in 2014 and beyond. Exploration programs continue to make new discoveries at Santa Elena and also have rapidly advanced the definition of a large polymetallic deposit at the La Joya property in Durango State with stated resources of almost 200 million ounces of Ag equivalent.
SilverCrest Mines (CVE:SVL) has seen several bullish analyst reports this week, with a number of brokers, including Cormark Securities, Dundee and Canaccord, increasing their price targets on the silver miner after it doubled the ounces at its La Joya property in Mexico.
The company's stock is up more than 20% in the last six months, lately changing hands at $2.55.
Cormark Securities Wednesday upped its price target on SilverCrest to $4.25 from $4.00 previously, due to an increased net asset value (NAV) estimate for La Joya.
"At the current price of C$2.58 per share, investors are paying 1.17x NAV for the producing Santa Elena Au-Ag mine and receive the La Joya project (and its considerable upside) for free," notes Cormark analyst Graeme Jennings.
"SilverCrest is quickly advancing toward becoming a top-class, mid-tier silver producer, yet trading at 0.65x NAV, it continues to be undervalued."
Earlier this week, SilverCrest announced the long-awaited resource update for its La Joya project, increasing the total inferred resource to 198.6 million ounces of silver equivalent, up from 101.9 million ounces previously, based on a 15 g/t cut-off.
Overall, the results were in line with Cormark's expectations, though grades declined slightly to 23.5 g/t.
But, Jennings, who has a buy rating on the stock, highlights the fact that management indicated its desire to focus its inital preliminary economic assessment on the property on a "starter pit" scenario, which revises the resource using a higher cut-off of 60 g/t - resulting in a near surface open-pittable deposit containing 49.1 million ounces of silver, 240 million pounds of copper and 240,000 ounces of gold.
The silver miner achieved commercial production in mid-2011. It has two primary assets - the producing Santa Elena mine and La Joya property in Mexico. The company produced 2.37 millon ounces of silver equivalent last year, and Cormark says it is on track to become a 5.0 millon plus producer within the next two years, with additional upside from the "rapidly expanding" La Joya project.
"We believe that the headline numbers (198.6 MMoz AgEq) and associated grades (at 23.5 g/t Ag, 0.17 g/t Au, and 0.19% Cu) may be somewhat misleading and may result in investors writing off La Joya as yet another large tonnage, low-grade project which will never see the light of day due to high capital requirements to allow the economies of capital to offset the low grades," the analyst writes.
"However, SilverCrest has long been cognisant of this reality and noted that it will be looking toward advancing the higher grade zone of the project, which are contained in the Main Mineralized Trend (MMT) portion of the resource, using a 60 g/t cut-off."
Indeed, Cormark's analyst adjusted his valuation for La Joya based on the high grade starter pit scenario. The capital markets firm is now using an increased in-situ valuation of $3.00 an ounce, from $2.25 an ounce previously, on the 49.2 million ounce silver estimate at the 60 g/t cut-off. This, in turn, bolstered Cormark's net asset value estimate for the property to $147 million from the prior $99.7 million.
SilverCrest noted earlier this week, when it released the latest resource, that it will be starting preliminary economic assessment (PEA) activities shortly, which will look to leverage the higher grade starter pit scenario in order to maximize profitability.
"It is important to remember that La Joya is still early stage, which is why we continue to use an in situ valuation basis. SilverCrest’s mid-tier comparables are currently trading at approximately $6.00/oz total resource, while early stage explorers average $1.85/oz," Cormark's Jennings says.
In addition to the headline silver resource, the analyst adds that the Contact Zone at the property has a total resource of 20.9 million pounds of tungsten oxide, and 3 million pounds of molybdenum using the highest cut-off, and also reportedly contains lower levels of gold, silver and copper, which could add secondary value.
Cormark was not the only bullish broker, as Dundee Capital Markets analysts lifted their price target to $4.30 from $4.00 previously, also with a buy rating, while Canaccord Genuity now has a $4.50 target - up from $4.25.
Dundee's analysts note: "We have seen time and again, issuers announcing resource estimates using far too aggressive cut-off grades. We appreciate SilverCrest's management team for presenting a resource using 15, 30 and 60 g/t AgEq as it provides insight on deposit variability."
The analysts found that comparing the 15 and 60 g/t cut-off, there is 78% fewer tonnes and 46% fewer silver ounces. In other words, quadrupling the estimated operating costs results in a loss of less than half the contained silver resource.