As the gold price continues on its upward trend, many producing mining companies continue to be overlooked by market participants. As pointed out on last week’s gold note, the ARCA gold bug index and the gold price continues to show a significant discrepancy between the surge in the price of gold and the flow of capital returning to gold mining stocks. We expect this to correct in a rapid manner as more and more companies release upcoming Q1 and Q2 financials as margins are bigger, and more free cash flow is generated with elevated gold and silver prices.
A company worth having on your radar is Americas Gold and Silver Corporation. The company is a high-growth precious metal mining company with multiple assets in North America. It is expected, the companies newest asset located in Nevada, called Relief Canyon, will pour gold this month and will ramp-up to full production over the year. The exciting thing about this company is its growth profile in the coming years. They have set the guidance of increasing precious metal production 500% by 2021.
With Relief Canyon coming into commercial production shortly, it is worth highlighting the project’s fantastic economics. It has an initial mine life of 6 years; the keyword here is initial as the project has significant exploration upside as only 20% of the 11,700-hectare land package has been explored to date. Relief Canyon is expected to produce 90,000 ounces annually, with all-in sustaining costs coming in at $800/ounce.
The projects pre-tax NPV is $154M at a gold price of US$1,290; indicating significant upside with gold price appreciation. The gold price today is over US$1,550, which shows the type of free cash flow; this project will generate the company. It has extreme leverage to the gold price with its outstanding economics, but it also provides investors exposure to further discovery potential with its under-explored land package.
With the company looking to focus on increasing precious metal production, the main driver will be, of course, the Relief Canyon asset, which is set to produce 55,000 to 60,000 ounces of gold this year. But in addition, its San Rafael mine located in Mexico is expected to produce 900,000 ounces of silver this year and jumping production to 1.5 million ounces of silver in 2021.
It is worth noting; the company recently announced on Monday that there is an illegal blockade at the Cosalá Operations in Mexico. It is important to remember blockades are always temporary and will eventually be resolved. The company has ensured it is working hard to resolve this manner as fast as possible.
Finally, American Gold and Silver’s third asset is the Galena Complex. In September 2019, the company announced a strategic partnership with Eric Sprott for 20 million dollars, which gave him a 40% interest in the asset. The strategic partnership allows the company to increase development, modernize infrastructure, purchase new mining equipment, and target exploration below current operating areas with the goal of positioning the Galena Complex to significantly increase resources, production, and reduce operating costs at the mine over the next two years. Darren Blasutti, the CEO of the company, has recently said after the recapitalization, by mid-2021, he expects the asset to be a profitable two and a half million-ounce mine.
Given the companies, upcoming production profile, it is worth taking a look at what its earnings could look like against its peers. With bringing the new mine into production, increasing production at San Rafael, and recapitalizing the Galena complex, this company should have significant cash flow in the years to come.
When you look at the average 2020E-2021E free cash flow, you see the type of earnings leverage the company has with elevated gold and silver prices. The market capitalization of the company does not reflect this compared to its peers, as it is heavily discounted.
Many very notable investors and companies have significant positions in the company such as Pierre Lassonde, Eric Sprott, Donald Smith & Co, and Sandstorm Royalties, to name a few.
If you’re looking for exposure in a high-growth, exciting silver, and gold producer, we believe American Gold and Silver is one to have an eye on this year as it could have a significant revaluation. Guided by a management team that has dropped all-in sustaining costs by 70% in 4 years with numerous assets in North America, this one has many catalysts in the months to come.
You can find the company on the Toronto Stock Exchange under the symbol USA and the New York Stock Exchange under the symbol USAS.