TORONTO (miningweekly.com) – The TSX-listed stock of takeover target SilverCrest Mines on Wednesday closed 12% higher after the company lifted its full-year outlook on the back of a strong second-quarter performance.
The Vancouver-based company reported net earnings of $3.87-million, or $0.03 a share, for the second quarter ended June 30, compared with $1.31-million, or $0.01 a share, in the same period of 2014.
The increase in net earnings was mainly attributable to a significant increase in ounces produced and sold from the 100%-owned Santa Elena mine, in Mexico, as the operation transitioned from an openpit heap-leach operation to an underground mining and milling operation.
SilverCrest also reported improved silver and gold recoveries. Silver recoveries had increased from 60% in the first quarter to 74% in the second, while gold recoveries had improved from 91% in the first quarter to 96% in the period under review. This was partially offset by lower realised metal prices, higher operating costs and an increase in taxes compared with the second quarter.
For the quarter, all-in sustaining cash costs (AISC) were $10.97 a silver equivalent ounce (SEO) sold, lower than the AISC of $11.73/SEO in the comparable period last year.
SilverCrest CEO Scott Drever said owing to the quarter’s strong performance and continuing operational improvements, the company raised its 2015 output guidance to between 4.7-million SEOs and 5.1-million SEOs, up from 4-million SEOs to 4.4-million SEOs expected previously.
Cost guidance for SilverCrest was originally set at $14/SEO to $15/SEO and was revised down to between $12/SEO and $13/SEO, compared with the average of $11.11/SEO during the first half of the year.
Mexico-focused precious metals miner First Majestic Silver had late in July agreed to acquire all the issued and outstanding common shares of SilverCrest in a cash-and-scrip deal valued at about C$154-million.
Desjardins Capital Markets analyst Michael Parkin advised that should First Majestic be successful in closing the proposed transaction, SilverCrest’s strong second-quarter results boded well to lower First Majestic’s AISC on a pro forma basis, from $14.50/SEO, reported in the second quarter, to about $13.50/SEO.
However, the analyst noted that First Majestic would be able to eliminate most, if not all, SilverCrest’s cash, general and administrative expenses, and combined with First Majestic’s 2015 outlook calling for further cost reductions, prompted Desjardins to believe that First Majestic’s pro forma AISC could further reduce to about $12.50/SEO to $13.00/SEO.
“Overall, we view this pending acquisition very positively. However, we believe the potential for an interloper on this deal has increased based on SilverCrest’s second-quarter earnings and that the net acquisition price for SilverCrest is about equal to the expansion cost of Santa Elena, thus, making it a compelling asset to acquire, in our view,” Parkin said in a note to clients on Thursday.
As at market close on Wednesday, SilverCrest was trading at C$1.43 a share, in line with the implied bid price of C$1.43 based on First Majestic’s closing price of C$5.18 a share, and the exchange ratio of 0.2769 First Majestic common shares for each SilverCrest share held.
SilverCrest’s stock closed at C$1.43 apiece on Wednesday, up C$0.15 a share.