VANCOUVER (miningweekly.com) – Diversified Canadian miner Americas Silver is looking towards growing profit over the next three quarters as lower costs and rising grades at key operations provide it with runway potential to reward investors.
“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 $35, but look, here we are,” Americas Silver president and CEO Darren Blasutti tells Mining Weekly Online in an interview, noting that while the silver price always seems to answer to gold’s movements, its movements are usually delayed and it usually overshoots gold’s tops and bottoms.
According to him, silver remains ‘poor man’s gold’, or ‘gold on steroids’. It is a commodity and also an investment tool. The problem with it just being a commodity, is that it is hard to turn silver mines off, because most silver production is secondary. It 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.”
Silver also has a lot more industrial demand and much less investor demand, which alters the price dynamics from that of gold, he points out.
“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 says.
Both of the company’s operating assets have two types of ores, Blasutti points out, namely high-grade silver/low-grade copper; and high-grade lead/zinc, with a low-grade silver component.
Americas Silver has spent the past three years changing over to the base metals view, and Blasutti says while it was a challenging and capital intensive time to develop lead and zinc stopes at Galena, in Idaho, with all the money now spent, the company is be able to “switch on” silver production of about 800 000 oz almost instantaneously, while it is set up 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.
At Galena, Blasutti noted that the company mined out all the silver/copper stopes in 2012, and transitioned the operation from about 85% silver and 15% base metal back then, to about 1.4-million ounces of silver there in the first quarter, and also 25-million to 30-million pounds of lead – which is critical to provide a by-product credit, but also to provide wide access stopes that allows the company to be much more cost effective, Blasutti points out.
At the same time, the company has managed to maintain the silver-equivalent grade at Galena, but costs had fallen from about $300/t of silver/copper ore, to about $160/t for silver/lead ore, he points out. 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.
In Mexico, Americas Silver in December declared commercial production at the San Rafael operation. Here it had discovered silver/copper mineralisation on the eastern side, which was not previously part of the resource.
Drilling started in the second quarter of 2017 and the company was immediately rewarded with intercepts such as 61 m of 412 g/t silver equivalent, which signalled the discovery of a new deposit called Zone 120. It is a high-grade silver/copper skarn on the edge of the San Rafael property, which is more like a disseminated orebody, Blasutti explains.
The company expects to complete drilling of the deposit by June 30, which is its effective date for resource and reserve reports, with a view to publish a resource estimate early in September. It will continue to undertake technical and economic studies on Zone 120 to consider development options in 2019.
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 El Cajón mine, also part of the Cosalá asset, still has about three-million tonnes "sitting there, waiting for improved prices", while the company is exploiting San Rafael that has up to 100 g/t higher silver grades, Blasutti notes.
Free cash flow growth this year will mainly be driven by San Rafael ramping up to nameplate capacity, while the company’s capital intensity falls. In 2019/20, the company will still have growing high-grade silver production, dovetailing into growing lead/zinc production through to 2020.
Americas Silver has about 123-million ounces of silver across all resource categories and about 30-million ounces in reserves, and then about a billion pounds of lead and 700-million tons in zinc resources. That excludes the San Felipe project, where the company recently reported strong exploration results that lifted zinc and silver by 258% and 236%, respectively, in the indicated mineral resource.
“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.
“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,” he says.
Blasutti concedes that it is often difficult for investors to appreciate the significant optionality the company’s silver resources present, since it is a complicated story, but he reminds investors that despite the company having gone from about 85% silver production to about 25% to 30% now – it belies the fact that the company can take silver output back to 80% at any time. “We are choosing to wait until the silver price is right for us, and this will reward shareholders for their patience,” he notes.
Blasutti says there is constant interest from other mine developers in Idaho wanting to enter negotiations to use the 1 000 t/d of spare capacity at the Galena mill, but he says the company is guarding that spare capacity since any long-term agreement with a third party will tie up capacity that could be put to the company’s immediate use, should silver prices rally quickly.
In Mexico, the company is permitted to go to 4 000 t/d, but the existing capacity sits at about 1 800 t/d, which also provides significant runway to bring added silver/copper production on line at very little cost, to complement the silver/lead production in progress.
For the first quarter ended March, Toronto-based Americas Silver has swung to a profit of $500 000 for the first quarter, compared with a net loss of $200 000 in the comparable quarter of 2017, as higher silver output and markedly lower costs boosted the bottom line.
Revenues increased 34% year-on-year to $20.4-million, compared with revenues of $15.2-million a year ago.
Consolidated silver output for the quarter totalled 1.6-million silver equivalent ounces, an increase of 46% when compared with the first quarter of 2017, including about 400 000 oz of silver.
The company has 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 cost of sales of $7/oz to $8/oz of equivalent silver, cash costs of negative $10/oz to negative $5/oz of silver and all-in sustaining costs of negative $1/oz to $4/oz of silver.