Just before leaving his post as mining analyst for Deutsche Bank, George Albino gave a thumbs-up to
“We view Corner Bay as among the most attractive investment opportunities in the precious metal sector,” Albino noted in a recent research report. “Alamo Dorado could be the highest-grade and largest heap-leach primary silver mine in the world. The prefeasibility study indicates a robust internal rate of return of 58% at forecast metal prices, and our analysis suggests the project will support a minimum of 65% debt financing of initial capital expenditures.”
Albino rates Corner Bay a “buy” and sets a 12-month target price of $5.25. The junior currently trades at about $1.50 within a 52-week range of $3.25-1.27. It has 15.5 million shares outstanding (19.4 million fully diluted).
Albino’s bullish assessment is based on four factors:
the robust economics of Alamo Dorado, even with a generally bearish commodity outlook;
the company’s superior valuation in comparison with other precious metal companies;
superior silver exposure based on a high proportion of revenue coming from that metal, and lower balance-sheet risk compared with most current silver producers; and
potential for exploration and technical studies to increase the size of Alamo Dorado.
Albino also gave a thumb’s-up to the company’s experienced management, “which provides confidence for a scheduled startup in 2003.” Both Chairman Peter Mordaunt and Vice-President Steve Brunelle are geologists, and each has 20 years of industry experience.
As for Alamo Dorado, a $5.5-million financing completed late last year will fund a bankable feasibility study targeted for completion in early 2002. Infill drilling is also planned for this year, along with testing of exploration targets along strike of the known Alamo Dorado deposits.
A recent update of a prefeasibility report placed total minable reserves at 52.5 million tonnes grading 63.05 grams silver and 0.23 gram gold. About 129 million ounces silver-equivalent are now classified as reserves, while 143 million ounces have been placed in the resource category.
The latest study places capital costs at US$45 million for a heap-leach mine operating for 10 years at an average mining rate of 15.6 million tonnes of ore and waste per year.
Metallurgical tests indicated 75% silver recovery over 206 leach days, up from 70% for silver assumed in the prefeasibility study. Albino says the additional 5% recovery, “as indicated by the column tests, will have a significant impact on the potential economics of Alamo Dorado.”
Beginning in 2002, the open-pit/heap-leach mine is expected to produce an average of 9 million ounces silver-equivalent annually over its 10-year mine life, though production will be higher in the first two years, at 18 million oz. and 17 million oz, respectively.
Exploration will continue at the property, and Albino says incremental reserve additions are likely, based on past drilling success. “Several look-alike targets on the property offer the chance for substantial reserve growth.”
On a cautionary note, Albino says Corner Bay still needs another equity issue to finance the portion of project financing not funded by project debt. An operating team is also required, and the direction of price of silver remains uncertain.
Albino believes Corner Bay is in the “spotlight” as an acquisition candidate for small-to-intermediate gold and silver companies seeking “strong cash flows from a financially robust, technically simple project in a favourable political jurisdiction.”
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