BMO: Silvercrest Metals an attractive takeover candidate

Silvercrest Metals (TSXV: SIL) expects to update the resource estimate and complete a preliminary economic assessment in the first quarter of the year on its Las Chispas silver project in Mexico.

A resource estimate in September 2018 focused on an estimated 5.5 km of about 20 km of cumulative vein strike length in the district, about 180 km northeast of Hermosillo in the state of Sonora.

Las Chispas’ current inferred resource measures 4.3 million tonnes grading 3.68 grams gold per tonne and 347 grams silver per tonne.

In addition to the resource update and PEA, expected before the end of March, the company plans to finish a prefeasibility study before the end of the year and start an exploration decline at the project’s high-grade Babicanora vein.

BMO Capital Markets analyst Ryan Thompson has initiated coverage of the stock with an outperform rating and a target price of $6.50 per share.

Silvercrest Metals shares are currently trading at $4.80 per share within a 52-week range of $2.00 and $4.99. The company has 85 million common shares outstanding for a market cap of $409 million.

“Over the past two years, Silvercrest has been a standout success story against a backdrop of many precious metals companies whose share prices have struggled,” Thompson states in a Feb. 12 research note to clients. “Las Chispas is a scarce asset (high grade, silver) so we think the strong share price performance has been warranted.”

Given the project’s high grades, the company’s proven management track record and exploration upside, Thompson adds, “we think these features make the company an attractive acquisition target.”

Prior to the formation of Silvercrest Metals, CEO Eric Fier was a co-founder and chief operating officer of Silvercrest Mines, which was acquired by First Majestic Silver (TSX: FR; NYSE: AG) in October 2015.

It was Fier, Thompson notes, “who headed the team that discovered Santa Elena in 2006, developed the project [and] operated the mine, underscoring a proven management track record.”

Thompson believes that the Santa Elena mine’s construction “will serve as a blueprint for Las Chispas.”

Fier has also worked previously as chief geologist for Pegasus Gold, senior engineer and manager with Newmont Mining (NYSE: NEM), and project manager at Eldorado Gold (TSX: ELD).

Thompson also points out that Silver Standard Resources (TSX: SSRM) acquired a 9.9% stake in the company in December at $3.73 per share, and that Silvercrest Metals’ management, board and employees own about 16% of the company’s shares.

Elsewhere in Sonora, Silvercrest owns the Huasabas property, 190 km northeast of Hermosillo, and Cruz de Mayo, 163 km northeast of Hermosillo.

Thompson argues Silvercrest is “an attractive takeout candidate for a mid-tier gold and/or silver producer.”

“We view Silver Standard Resources’ 9.9% investment as partial validation of our thesis, but we think the list of potential acquirers is not limited to SSR. Given Silvercrest’s modest capex requirements and high margins, it is likely that several mid-cap precious metals companies could apply a premium to SIL’s recent share price and realize accretion to cash flow and margins when the mine enters production.”