Thanks to lower costs, Toronto-based Americas Silver is expecting to see profit growth over the next three quarters.
The company believes that the low costs and steadily increasing grades will give Americas Silver the ability to reward investors with runway potential.
“Our job as management is to figure out how to make money at these low silver prices. When we bought US Silver in 2012, we thought that silver was going to go to US$35, but look, here we are,” said Americas Silver president and CEO Darren Blasutti.
When compared to gold, the company states that while the silver price tends to be aligned with gold’s movements, its movements are usually delayed and the metal often “overshoots gold’s tops and bottoms.”
Blasutti elaborates, stating that the white metal remains a “poor man’s gold,” or “gold on steroids,” noting that it is both a commodity as well as an investment tool. The problem with silver exists when it is just a commodity, as it not easy to turn silver mines off, since most silver production is secondary and is usually a by-product of base metals production.
“It’s very difficult to chart a course for the silver price, since gold is not doing anything. Gold investment has picked up a little bit, but not enough to lend direction to the silver price at this stage,” said Blasutti.
“The bottom line is, when the price starts to run, one has to act quickly to get in on the act, and that is where our current portfolio gives us the leg up on our peers. We have a lot of silver reserves waiting in the ground, and we’ll continue to wait for the right time to profit the most off of our precious metals resources,” he added.
One of Americas Silver’s prevalent mines is the Galena, located in Idaho. This mine has been most-known for its lead and zinc stopes but the company is now able to “switch on” silver production of about 800,000 ounces.
Switching to silver production will allow the company to enjoy growing earnings results for the rest of the year as the lowest-cost silver producer, while it continues to monitor the silver price.
Blasutti points out that costs at Galena have fallen from about US$300 per tonne of silver/copper ore, to approximately US$160 per tonne for silver/lead ore.
“Galena is returning to an acceptable level of operating performance as grades return to historical norms, with consistent contributions from key production areas,” he advises.
Beyond Galena, Americas Silver has declared commercial production at its San Rafael operation, where it discovered silver/copper mineralisation on the eastern side.
San Rafael is expected to provide lower silver production compared with the previously mined deposits at the Cosalá operations, until mining sequences to the higher-silver grade areas of the orebody later next year.
The company has noted that free cash flow growth will mainly be driven by San Rafael ramping up to nameplate capacity this year. In 2019/20, Americas will still have growing high-grade silver production which will interlock into growing lead/zinc production through to 2020.
Currently, the company lays claim to approximately 123-million ounces of silver across all resource categories and about 30-million ounces in reserves.
Looking forward, Blasutti stated, “we’re different than our peers, because we have the optionality to produce products that are in upward price cycles, while holding back on silver production until the price is ‘right’ for us. We want to build our balance sheet with base metals until the silver cycle turns in a year or two.”
He added, “by that time, we will have significant cash on the balance sheet, our highest-grade silver reserves will be ready for production, and we’ll have the money to build things out as circumstances require. We won’t have to go out and buy assets like many of our peers will have to, because they are now high-grading their assets just to stay alive.”
For the first quarter of 2018, Americas Silver announced a profit of US$500,000, compared with a net loss of $200,000 in Q1 of 2017, as higher silver output and lower costs boosted the bottom line.
Revenues increased to US$20.4-million, compared with revenues of $15.2-million a year ago, which was an uptick of 34 percent.
The company has reported a guided for full-year production of 1.6-million to 2-million ounces of silver, or 7.2-million to 8-million ounces of silver equivalent, at the sales cost of US$7 an ounce to US$8 an ounce of equivalent silver.
As of 2:08 p.m. EST, Americas Silver was down 3.18 percent, trading at US$4.57.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.