"With the gold price up 26% and silver up 29% YTD (silver was 52% of revenue in this quarter), Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) is well-positioned for a major rerating in the precious metals sector," a VSA Capital research note reported.
VSA Capital analyst Oliver O'Donnell, in a research report published on November 12, 2024, maintained a Buy rating on Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) with a target price of CA$1.30. The report follows Sierra Madre's first quarterly earnings since starting test mining operations.
O'Donnell highlighted the company's initial production results, stating, "Figures for Q3 2024 indicate production of 49koz silver and 539oz gold or 95koz AgEq. Realized silver prices averaged US$28.9/oz while gold averaged US$2,474/oz. Revenue was US$2.5m with COGS of US$2.3m leading to an operating profit of US$0.25m, an impressive achievement for this the earliest phase of production."
The analyst emphasized continued operational progress, noting, "The company reported sequential increases in operating availability with the most recent update post period end in October achieving over 425tpd with 39,272t processed up until that point. The company is targeting commercial rates of over 500tpd before year-end."
Regarding future potential, O'Donnell stated, "Our base case analysis of commercial production rates indicates US$80m in post-tax cash flow over the next five years after funding a ramp up to 1,000tpd, allowing for future expansion and a large-scale drilling program of brown and greenfield targets within the 40,000ha license area."
The report highlighted the company's strong positioning in the current market environment, with the analyst noting, "With the gold price up 26% and silver up 29% YTD (silver was 52% of revenue in this quarter), SM is well-positioned for a major rerating in the precious metals sector."
VSA Capital's valuation methodology combines DCF and EV/oz multiple approaches. O'Donnell explained, "Our base case over five years yields a post-tax NPV10 of US$66m. However, this does not fully account for the likelihood that a significant portion of free cash flow will be reinvested in the project." He added, "We, therefore, continue to use our current valuation methodology using a fair EV/oz multiple."
In conclusion, VSA Capital's maintenance of their Buy rating and CA$1.30 target price reflects confidence in Sierra Madre's operational execution and growth potential. The share price at the time of the report of CA$0.47 represents a potential return of approximately 176% to the analyst's target price.
| Want to be the first to know about interestingGold andSilver investment ideas?Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
Sierra Madre Gold and Silver Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Sierra Madre Gold and Silver Ltd. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.For additional disclosures, please click here.
Disclosures for VSA Capital, Sierra Madre Gold and Silver Ltd., November 12, 2024
Investment Analyst Certification In my role as a Research Analyst for VSA Capital Limited, I hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Non-Independent Research This is a marketing communication. It is non-independent research as it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Important Disclosures This research report has been prepared by VSA Capital Limited, which is party to an agreement to be paid a fee as corporate finance advisors and arrangers with, or has provided investment banking services to, Sierra Madre, or has been party to such an agreement within the last twelve months, and is solely for, and directed at, persons who are Professional Clients as defined under Annex II of the Markets in Financial Instruments Directive, Directive 2004/39/EC, or as defined in the FCA Handbook. Persons who do not fall within the above category should return this research report to VSA Capital Limited, Park House, 16-18 Finsbury Circus, London EC2M 7EB, immediately. VSA Capital may distribute research in reliance on Rule 15a-6(a)(2) of the Securities and Exchange Act 1934 to persons that are major US Institutional investors, however, transactions in any securities must be effected through a US registered broker-dealer. If you are a US person, you must fulfil the requirements of a major US institutional investor as defined by the Securities Exchange Act 1934 and subsequent guidance from the SEC to receive this research report. Any failure to comply with this restriction may constitute a violation of US law for which VSA Capital Limited does not accept responsibility. The information in this report is not intended to be published or made available to any person in any jurisdiction where to d o so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or t o you (by reason of your nationality, residence or otherwise) it is not directed at you. This research report is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. It is being supplied to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any purpose, without out prior written consent. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities. The information and opinions contained in this research report have been compiled or arrived at by VSA Capital Limited from s ources believed to be reliable and in good faith but no representation or warranty, express or implied, is made as to their accurac y, completeness or correctness. All opinions and estimates contained in the research report constitute the Company's judgments as of the date of the report and are subjec t to change without notice. The information contained in the report is published for the assistance of those persons defined above but it is not to be relied upon as authoritative or taken in substitution for the exercise of the judgment of any reader. The Company accepts no liability whatsoever for any direct or consequential loss arising from any use of the information cont ained herein. The company does not make any representation to any reader of the research report as to the suitability of any investment made in connection with this report and readers must satisfy themselves of the suitability in light of their own understanding, appraisal of risk and rewa rd, objectives, experience and financial and operational resources. The value of any companies or securities referred to in this research report may rise as well as fall and sums recovered may be less than those originally invested. Any references to past performance of any companies or investments referred to in this research report are not indicative of their future performance. The Company and/or its directors and/or employees may have long or short positions in the securities mentioned herein, or in options, futures and other derivative instruments based on these securities or commodities. Not all of the products recommended or discussed in this research report may be regulated by the Financial Services and Marke ts Act 2000, as amended by The Financial Services and Markets Act 2012, and the rules made for the protection of investors by that Act will not apply to them. If you are in any doubt about the investment to which this report relates, you should consult a person authorised and regulated by t he Financial Conduct Authority who specialises in advising on securities of the kind described. The Company does and seeks to do business with the companies covered in its research reports. Thus, investors should be aware that the Company may have a conflict of interest that may affect the objectivity of this report. To view our policy on conflicts of interest and connected companies, please go to: http://www.vsacapital.com/policies/conflict-of-interest-policy. VSA Capital acts as Corporate Adviser/Broker to Sierra Madre and is therefore classed as a connected company. Investors should consider this report as only a single factor in making their investment decision.
Definition of Ratings VSA Capital Limited uses the following stock rating system to describe its equity recommendations. Investors should carefully read the definitions of all ratings used in each research report. In addition, since the research report contains more complete information concerning the analyst's views, investors should carefully read the entire research report and not infer its contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock or investment fund should depend on individual circumstances and other considerations. VSA Capital Limited's recommendations are defined as follows: BUY: The stock is expected to increase by in excess of 10% in absolute terms over the next twelve months. HOLD: The price of the stock is expected to move in a range between -10% and +10% in absolute terms over the next twelve months. SELL: The stock is expected to decrease by in excess of 10% in absolute terms over the next twelve months. VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority (C) VSA Capital Limited, 2024, all rights reserved Park House, 16-18 Finsbury Circus, London EC2M 7EB | +44 (0)20 3005 5000 | www.vsacapital.com Registered in England: No. 02405923 VSA Capital Limited is a member of the London Stock Exchange. In addition, on occasion, if the stock has the potential to increase by in excess of 10%, but on qualitative grounds rather than quantitative, a SPECULATIVE BUY may be used. Distribution of VSA Capital Limited's Equities Recommendations VSA Capital Limited must disclose in each research report the percentage of all securities rated by the member to which the m ember would assign a "BUY", "HOLD, or "SELL" rating, and also the proportion of relevant investments in each category issued by the issuers to which the firm supplied investment banking services during the previous twelve months. The said ratings are updated on a quarterly basis.