Bear Creek slides with silver

As the New York spot price of silver has quickly retreated to $34.40 from its 31-year high of $48.70 on April 28, one of the formerly best-performing stocks in the junior silver space, Bear Creek Mining (bcm-v, bcekf-q), has tumbled along with it.

Shares of the company, which traded as high as $12 in March, fell 58¢ to a six-month intraday low of $6.90 on May 5, before closing the day slightly higher at $7.20. Silver shed $4.73 to $34.50 on the day, its fifth straight decline amid a significant pullback in the prices of several commodities.

Brokerage firm Raymond James has issued a buy recommendation on the stock with a six- to 12-month price target of $15.25. In a May 3 research report to clients, it lists Bear Creek as one of its top 10 mining picks while the company progresses the development of the smaller Santa Ana silver project in Peru and advances the much larger Corani silver project nearby toward a construction decision.

“We believe Bear Creek’s share price will benefit as it continues to de-risk these two projects. Bear Creek currently trades at a price to net asset value ratio of 0.7, below the current primary silver producer developer group average of 0.9,” noted the report.

While the stock has provided shareholders with excellent leverage to rising silver prices over the past year, it has also been liable to significant pullbacks when the metal underperforms.

Bear Creek completed a positive feasibility study for a heap-leach operation at Santa Ana in October 2010, outlining an 11-year mine life producing 5 million silver oz. per year for the first six years. With life-of-mine operating costs expected to total $8.72 per silver oz. and an initial capital cost of just $70.8 million, Bear Creek hopes to bring Santa Ana on-line no later than the second half of 2012.

Having already defined a 63.2-million-oz. silver resource in the proven and probable categories (37 million tonnes grading 53 grams per tonne silver, as well as 0.34% lead and 0.58% zinc), the company now awaits approval of its environmental and social impact assessment, followed by the final mining permits. In the meantime, it is completing detailed engineering studies and arranging for long-lead-time equipment so that construction can begin in the latter part of 2011.

Bear Creek is also fast-tracking development of its much larger Corani project, for which it expects to complete a feasibility study in the third quarter of 2011. The company acquired Corani as a grassroots project from Rio Tinto (rio-n, rio-l) in 2005 but has since delineated a proven and probable resource totalling 258 million silver oz., 2.8 billion lbs. lead and 1.4 billion lbs. zinc (139.6 million tonnes grading 57.5 grams per tonne silver, 0.94% lead and 0.45% zinc).

According to a positive prefeasibility study completed for the project in 2009, Corani’s initial capital cost is estimated at US$339 million. The company expects annual silver production of 10 million oz. for the first six years at cash costs of approximately US$1.06 per silver oz., net of base metal credits.

Providing further upside potential are four other early-stage prospects, all in Peru. Bear Creek has scheduled second-stage drilling in the second quarter of 2011 at the Tassa silver-gold prospect, approximately 160 km away from Santa Ana to the south and nearly the same distance from Corani to the north. The company also plans mapping, sampling and stage-one drilling at its Sumi and Alejandra gold projects in central and northern Peru respectively.

Lastly, Bear Creek has a joint venture agreement with Japan Oil, Gas and Metals National Corp. to further advance its La Yegua copper-gold-molybdenum project, for which second-stage drilling is expected later this year.

Raymond James notes other positive news flow in the near term might come from the company completing the acquisition of surface rights to Santa Ana, expected later in the second quarter.