Silver & Gold Co. Secures US$5M Loan for Restart of Mexican Mine

Source: Streetwise Reports 05/09/2024

Sierra Madre Gold and Silver Ltd. announced it has received a loan from major First Majestic Silver Corp. to complete the work needed to restart its 100%-owned La Guitarra silver and gold project. Read why one analyst thinks the stock is undervalued.

Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) announced it has received a US$5 million loan from major First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) to complete the work needed to restart its 100%-owned La Guitarra silver and gold project in Mexico.

The non-revolving, secured term loan will be used to complete the company’s advancements to the facilities, equipment, and infrastructure at the mine site, Sierra Madre said.

Work will include lead orders for mining equipment, processing facility upgrades, mill repairs, full staffing arrangements, and final underground development for an operational restart.

“After a thorough and extensive process, we are very pleased to announce this non-equity, non-dilutive financing,” Sierra Madres President and Chief Executive Officer Alex Langer said. “The loan will allow us to complete all necessary steps for the possible restart of the fully permitted La Guitarra silver and gold mine. We would very much like to thank First Majestic for providing this funding and for their continued support of La Guitarra.”

La Guitarra is a permitted, past-producing underground mine with a 500-tonne-per-day (tpd) processing facility that operated until 2018, the company said.

“The eastern portion of the district was host to large high-grade mines that were significant producers during the Spanish colonial period,” Sierra Madre’s website said. “This area has only seen limited modern drilling and exploration, even though it is host to hundreds of old mines, prospects, workings, and veins.”

Sierra Madre said the loan is for a two-year term and bears interest at a rate of 15% per annum, compounded monthly, which will be due and payable to the lender starting six months from the commencement date of the loan and due on the last day of each calendar month thereafter. The company may pay back the loan plus accrued and unpaid interest to the lender at any time without penalty.

As security for the loan and the company’s performance of its obligations under the loan agreement, the company has agreed to pledge all of the shares of its wholly-owned subsidiary that owns La Guitarra in favor of First Majestic, and the company and certain of its subsidiaries have entered into general security agreements in favor of First Majestic.

The Catalyst: An Increasing Resource

Sierra Madre has said a mine restart study for La Guitarra should be finished in Q3 and will include new estimates of underground mine material on the Guitarra, Coloso, and Nazareno mines, the Los Angeles deposit, and an operating cost estimate. It also will include a capital cost estimate.

Last year, the company filed a technical report increasing the Mineral Resource Estimate (MRE) for the project by 373% in the indicated category to 27.2 million ounces (Moz) silver equivalent (Ag Eq) and increasing the inferred resource by 204%, to 20.2 Moz Ag Eq. According to the resource report, the La Guitarra project hosts 3,842,000 tonnes of indicated silver resources grading 146 g/t Ag and 0.96 g/t Au and an inferred resource of 4,105,000 tonnes grading 113 g/t Ag and 0.52 g/t Au.

VSA Capital mentioned the resource update in a November 2023 note on Sierra Madre, rating the stock a Buy for potential investors with a target price of CA$0.90.

“We expect the restart plan to confirm modest capital costs to achieve the current nameplate capacity of 520tpd (tonnes per day) in a phased manner,” the analysts wrote.

That same month, Bereket Berhe with Beacon Securities rated Sierra Madre as a “Speculative Buy” with a share target price of CA$0.75.

“The analyst views Sierra Madre as undervalued based on progress advancing La Guitarra towards a near-term restart of production,” the analyst wrote.

Expert: Gold ‘Will Go Very High’

Gold prices have dropped slightly this week but still remain above US$2,300 an ounce.

Some analysts are predicting a bull market for the yellow metal. Newsletter writer Captain Ewave recently analyzed the precious metal’s movements and recommended being long on gold.

“Are gold and gold mining stocks on the verge of an explosive move higher?” he wrote. “Based on our analysis, the answer appears to be a resounding yes.”

Veteran investor Jim Rogers is predicting that gold “will go very high” on buying pressure from retail investors, institutional funds, and central banks in developing countries.

“Gold prices have been down for many years. In the recent months, it started moving,” Rogers told Business Today TV. “Whenever a commodity, which has been static for a long period, starts moving, it gathers momentum. That’s what is happening with gold right now. The momentum is building, and who knows how high the gold rates will go.”

The throttle at the moment appears to be interest rates, with a Fed official indicating that rates could stay at their current high levels with inflation moving “sideways” for a while, Investopedia.com reported. [OWNERSHIP_CHART-10135]

“Worries about when the Fed might cut rates could negatively impact the price of gold,” the website noted.

Ownership and Share Structure

Sierra Madre provided a breakdown of the company’s ownership and share structure, where management and founders own approximately 24.8% of the company. According to Reuters, President and CEO Alexander Langer owns 1.96% of the company, Executive Chairman and COO Gregory K. Liller owns 1.78%, Director Jorge Ramiro Monroy owns 1.33%, Director Alejandro Caraveo owns 1.16%, Director Kerry Melbourne Spong owns 0.43%, and Director Gregory F. Smith owns 0.16%.

Institutional investors own 12.9% of the company. Commodity Capital A.G. owns 4.4%, Reuters reported.

First Majestic Silver Corp. is a strategic investor and owns 44.9% of the company.

The rest is with retail and high-net-worth investors.

According to Refinitiv, there are 152.69 million shares outstanding and 73.21 million free float traded shares, while the company has a market cap of CA$67.05 million and trades in a 52-week range of CA$0.25 and CA$0.74.

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Important Disclosures:

1. 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.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Sierra Madrea Gold and Silver Ltd.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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( Companies Mentioned: SM:TSX.V; SMDRF:OTCQX, )