Americas Silver plans year-end gold production at Relief Canyon

Americas Silver (TSX: USA; NYSE: USAS) expects to start producing gold before year-end at its fully funded Relief Canyon project in Nevada, 153 km northeast of Reno.

The mine will produce about 91,000 oz. gold per year over a 5.6 year mine life at all-in sustaining costs (AISCs) of US$801 per ounce.

Americas Silver picked up the project - which includes three historic open-pit mines and a fully permitted and constructed heap-leach processing facility - through its acquisition of Pershing Gold, a transaction announced in September 2018 that closed in April 2019.

The company has a financing agreement with Sandstorm Gold (TSX: SSL; NYSE: SAND) for US$42.5 million to restart the mine.

Relief Canyon will add substantial precious metal production and cash flow next year, Darren Blasutti, the company's president and CEO, says in an interview.

"The important part of Relief Canyon and why we did the transaction, was that adding a high quality gold project and gold revenue rerates us as a precious metals company," he says. "Last year gold was less than 25% of our revenues, but adding Relief Canyon will bring that up to close to 70% in 2020."

Americas Silver's other assets are its Galena complex in Idaho and its Cosala operation in Sinaloa, Mexico. During the second quarter, Galena produced about 383,000 silver-equivalent oz., including about 200,000 silver oz., and Cosala produced about 1.3 million silver-equivalent oz., including about 145,000 silver ounces.

A drill at the Relief Canyon gold project in Nevada. Credit: Pershing Gold.

The company expects full-year production from Galena and Cosala will reach 1.6 million to 2 million silver oz. and 6.6 million oz. to 7 million silver-equivalent oz., at cash costs of US$4 to US$6 per silver oz. and AISCs of US$10 to US$12 per silver oz. in 2019.

Relief Canyon "was a fantastic transaction for us," Blasutti says, noting that when the deal was announced in September last year, gold was trading at US$1,180 per oz. and today it's over US$1,400 per ounce.

While silver prices have also gone up, he says, many producers are struggling - even at today's spot price of US$16.37 per oz. - when average AISCs run to US$15.50 or US$15.75 per ounce.

"We're up about a dollar but if you look at average costs in the silver industry they're over US$15 per oz., so we're not making money," he says. "The industry itself has been in an eight-year bear market, it's been mining its highest grade reserves to survive and you've had AISCs above the silver price, so that's why the silver industry has been hit so hard."

Blasutti notes that silver reserve grades are down by 39% since 2011.

The mining executive notes that even companies like First Majestic Silver (TSX: FR), Endeavour Silver (TSX: EDR; NYSE: EXK) and Pan American Silver (TSX: PAAS; NASDAQ: PAAS) "have had to high-grade their mines, not everyone expected to be in an eight-year bear market."

"When people talk about the silver price moving up US$1 or US$2 I'm not sure how much of an impact this is going to have," he says. "I'm still very excited about the silver market, but it's got a long way to go before it impacts the bottom line ... ultimately, you need a price well north of US$20 per oz. before you have a real margin expansion in silver."

In July, Eric Sprott invested US$10 million in the company with the purchase of about 4 million common shares at a price of C$3.30 per share in a non-brokered private placement. The investment increases Sprott's ownership in the company to 8%, up from about 3%.

The majority of the proceeds will be used to satisfy the equity financing condition of the loan facility with Sandstorm Gold.

Some of the funds will also be spent on option payments for its San Felipe project. Last month, Premier Gold Mines (TSX: PG) terminated an agreement reached in April with Americas Silver to purchase the option for US$10.8 million.

At press time in Toronto, Americas Silver is trading at $4.02 per share within a 52-week trading range of $1.66 to $4.11. The company has 82.5 million common shares outstanding for a $332-million market capitalization.