Levon Resources: Leveraging a Strong Cash Position for Silver Success in Mexico

Formerly an analyst at B. Riley & Co. and CK Cooper & Company, Bhakti Pavani is currently a senior research analyst at Euro Pacific Capital. She is responsible for writing on companies in the oil and gas industry, as well as in the metals and mining space. She has a Master of Business Administration degree with a concentration in Finance from California State University, Fullerton.

In the interview below she gives her thoughts on Levon Resources (TSX:LVN), a Canadian exploration company that’s currently advancing the silver–gold–zinc–lead porphyry Cordero project in Chihuahua, Mexico.

RIN: Let’s start off by talking briefly about the market. Silver has not been faring very well for quite a while now — what needs to happen for that to change?

BP: A correction in the equity markets should help give some boost. Additionally, we believe as the Fed starts increasing interest rates in 2Q15 gold and silver prices should get a boost.

RIN: Not all silver-focused companies have been able to thrive in this price environment, but some certainly have. Where does Levon Resources fall on that spectrum?

BP: Levon’s strong cash position should help it thrive in this price environment. Management has been very smart in utilizing cash. The company just announced a 9.9-percent stake in Pershing Gold (OTCMKTS:PGLC), which recently received the permit to begin production at the Relief Canyon mine, Nevada. We believe this investment will generate substantial value for the company’s shareholders in the long term. The diversification strategy adopted by management should help in the long run.

RIN: Levon’s key asset is the Cordero project in Mexico, which it says is one of the world’s largest silver resources. That’s impressive, but I’ve seen some concern amongst investors about the grade of the metals there — will that be an issue for the company, or does quantity trump grade in terms of silver?

BP: It’s a bulk tonnage, low-grade mine, but it’s a huge deposit and just like any other porphyry style of deposit has a capability to support production up to 100 years. If you look at our NAV model, despite low grades, it still generates a positive NPV and that’s just based on a 25-year starter pit mine.

RIN: Levon recently released an updated NI 43-101 resource estimate for Cordero, and it shows that the project’s indicated silver resource has increased by 34 percent. How significant is that for the company?

BP: It’s very significant; the previous resource supported a starter pit of 15 years, but the updated resource supports a start pit of 25 years of production.

RIN: The company’s share price didn’t react much following the release of the new estimate; in fact, if anything, it went down. Why do you think that was? Did the report not deliver what investors were looking for?

BP: Investor sentiment has been negative towards all metal and mining stocks, and Levon is no exception.

RIN: Now that the resource estimate is out, what will the company’s next steps be?

BP: Currently, the company is analyzing data collected and working towards putting out a preliminary economic assessment study report. In the meantime, Levon is also looking at investment opportunities that can help diversify its portfolio and generate returns for shareholders.

RIN: When I spoke with Ron Tremblay, Levon’s president, CEO and director, at the beginning of the year, he emphasized that Levon is very well funded. Is that still the case? How far will the company’s money take it in terms of completing the steps outlined above?

BP: That’s correct. Even after the recent acquisition, we estimate Levon’s cash position at ~$30 million. The company is also in the process of collecting a tax refund for all the exploration dollars spent over the years from the Mexican government. At this time, management doesn’t intend to initiate any large-scale exploration and drilling program — given the current market conditions it makes sense as the company will hardly get any credit for it. In a nutshell, for the near term Levon’s in good shape in terms of cash position.

RIN: Cordero is located in Mexico, and last year there was some concern about what the country’s new mining tax would mean for companies operating there. Do investors need to worry about it affecting Levon?

BP: The new mining tax levied by the government on metal and mining producers was certainly a blow given the current price environment in commodity markets. At this point, we believe Levon is not impacted as it is not generating any revenues; however, once it starts production and is generating revenues it will have to start paying the mining tax in cash as stated by the government.

RIN: Looking more closely at location, what is the infrastructure like around Cordero?

BP: We believe Levon is ideally located as infrastructure including power, water and labor is all available. The property is located 10 kilometers from the main highway and 35 kilometers northeast of Hidalgo del Parral, a small town of 110,000 people.

RIN: Corporate social responsibility is becoming increasingly important in the mining sector. What is Levon doing to give back to the community/environment?

BP: We believe Levon has been actively involved with the local community; the company has provided jobs for about 65 people from that community, and has provided English classes for them. The company has improved the roads for the local community, and is participating in an educational fund.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Levon Resources is a client of the Investing News Network. This interview was conducted as part of the company’s paid advertising campaign and is paid-for content. 

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.