Golden Arrow Resources - Newest Silver Producer

After reading a few articles & interviews of Chairman, President & CEO Joseph Grosso, I’m struck by the lack of investor appreciation of Golden Arrow Resources‘ (TSX-V: GRG), (OTCQB: GARWFblockbuster news of it entering into a 25%/75% JV with mid-tier gold/silver producer Silver Standard Resources (Nasdaq: SSRI) (TSX: SS).

In the 18-month period since agreeing to evaluate a combination of Silver Standard’s Pirquitas mine and Golden Arrow’s Chinchillas Silver project in Argentina, it invested ~US$ 16 M (plus a C$ 2 M option payment) into the Company. Among other things, this capital paid for 24,000 m of drilling, engineering studies and metallurgical test work, culminating in a Pre-Feasibility Study (“PFS”).  Overnight, Golden Arrow jumped from explorer to 25% owner of a producing mine and Mill.  

Does the Company’s valuation embrace this monumental de-risking event? 

I believe there are 3 primary reasons for the under-appreciation of the [Chinchillas / Pirquitas Mine] JV.  At first blush, the PFS for a proposed 8-year mine life at the Company’s Chinchillas project with a post-tax NPV of US$ 178 M left investors underwhelmed. 25% of US$ 178 M = US$ 44.5 M = C$ 60 M (equal to about C$0.60/share). Second, the PFS used a fixed, long-term Ag price assumption of US$19.50/oz vs. the current spot price of about US$17.25/oz.  

Third, there’s uncertainty as to how management will fund Chinchillas’ estimated US$ 20.25 M capital requirement over the next 18 months (and also be able to fund other important exploration activities, such as at Antofalla; see below). Although not the focus of this article, Golden Arrow controls ~25 other land packages totaling ~214,000 hectares.  

NOTE: {Please see Corp. Presentation for more info}

Tackling the idea of a funding challenge is not difficult.  Once the JV transaction closes the Company will have roughly C$ 27 M = US$ 20 M in cash.  On top of that, there’s an additional C$ 7 M from in-the-money options & warrants, plus an estimated C$ 11 M stretching out into mid-2018 from its share of cash flow from processing stockpiles at the Pirquitas mine.  

1 2 3 4
View single page >> |

Disclosure: The content of this article is for information purposes only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein, ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.