I have undertaken a deep dive into the recent acquisition and what I believe it means for shareholders. Overall, very astute acquisition by management in my opinion, offering shareholders exposure to one of the most bullish sectors.
Disclosure, I hold shares in AVM and have purchased on-market.
Advance Metals Value Proposition
1. Extremely low market cap & EV
2. Cash in the bank
3. Refreshed board of directors & new company direction
4. Strong sector tailwinds – silver & gold price heading towards all-time highs
5. Newly acquired project in top producing silver and gold mining region of Mexico
6. Existing high-grade foreign estimate with great potential for growth in size
7. No debt8. Refreshed Top 20 register
9. Drill ready
10. Newly appointed MD with history of discoveries
Silver Price Continues to Run
The acquisition of the Yoquivo Project positions Advance Metals (AVM) to take full advantage of the expected silver bull run, which is being tipped by many as likely to be unprecedented in comparison to past silver runs.
The silver price continues to push higher, up over ~50% since February this year and now trading at ~$US 34/oz.
To be clear, that is the highest it’s been in over a decade and as we see silver edge close to its all-time high of ~$US 50/oz, I think it’s likely junior silver explorers will be the beneficiaries.
In fact, we are already seeing ASX listed silver juniors reap the benefits of the silver price rise, as demonstrated by the below graph which highlights the positive correlation between the silver price and exploration juniors who have been running in parallel.
Strong Sector TailwindsThere are several trends and events which appear to be boosting the silver price and subsequently the sentiment:
1. Gold continues to rally - Historically, silver has done well when gold performs. As we know, Gold is doing very well
2. Silver uses are increasing - Silver demand is projected to continue growing, driven by several sectors, including solar energy, industrials (vehicles and consumer electronics), and 5G technology
3. Silver deficit increasing - Silver has been in an under supply for the third year running and this trend is likely to continue. In 2023, global silver demand was 1.2 billion ounces, but only 820 million ounces were produced, according to the Silver Institute, worldwide mine production of silver was 2% lower in 2022 than in 2023.
4. Interest rates are being cut - The U.S. Federal Reserve has already began its rate cutting cycle. Historically, lower interest rates tend to be favourable for precious metals like silver
~$4.7 Million Enterprise Value (EV) with Significant Upside PotentialPost acquisition AVM has a market cap of ~$6.7M, ~$2M in cash and an enterprise value of ~$4.7M
With such a tiny market cap, any exploration success will see the share price re-rate in the multiples.
For example, Mithril Silver and Gold (ASX:MTH) recently announced drill intercepts at their Copalquin District project, Mexico, (33m @ 31.8 g/t gold, 274 g/t silver from surface) which the market loved and boosted their market cap from ~9M to a peak of $130M (fully diluted) in under a week.
That’s an increase of 14 times from one drill hole, and if AVM replicate even half of that success it is a win for shareholders.
Most Prospective Silver Jurisdiction in the World
AVM have just secured a project with an existing silver foreign estimate and exploration upside in arguably the best silver producing jurisdiction in the world.
The Yoquivo Project is located within the Sierra Madre volcanic belt, the principal silver / gold mining metallogenic province in Mexico, which has produced as much as 6.2 billion ounces of silver, equal to approximately 10% of total global historical production
The Yoquivo District specifically is a producing, bonanza grade, epithermal vein gold and silver district, with AVMs newly acquired tenements demonstrating similar mineralization to their nearby neighbours which include:
• Minera Frisco SAB de CV (Cocheno Mine) - capped at ~$23B
• Agnico Eagle Mines Ltd (Pinos Altos Mine) - capped at ~$43.2B
• Sierra Metals (Cusi Mine) - capped at ~$186M
Yoquivo Project Has Foreign Estimate of 17.23M Oz Silver Equivalent (AgEq) @ 570 g/t AgEq
The Binding Sale Agreement with Golden Minerals stipulated a total cost of US $570,000 and third-party net smelter return royalties which will be payable by AVM on all the concessions and range from 2–3%
The Yoguivo Project which has been acquired includes an existing Foreign Estimate of 0.94Mt @ 570 g/t AgEq (2.1 g/t Au, 410 g/t Ag).
Golden Minerals have already undertaken three separate drilling programs between 2020 and 2022, which consisted of 70 diamond holes for over 16,500 metres, followed by the development of their Foreign Estimate. AVM shareholders have picked up quite the deal in my opinion.
The diamond drilling alone will have cost Golden Minerals several millions of dollars in addition to the corporate and administration cash burn required over the same time.
Acquiring such an advanced project, now significantly expedites the value proposition for AVM shareholders whilst also de-risking the exploration process as AVM now already has >16,000 meters of historic recent drilling with mapped exploration targets ready for drilling.
Cashed Up & Numerous Exploration Targets to Increase Deposit SizeMost of the drilling conducted by Golden Minerals at Yoquivo was focused on exploring the central part of the Pertenencia vein system.
Only minor drilling has been conducted on the Esperanza, San Francisco, La Huga and Dolar veins, and the drill holes have intersected intervals of potentially economic mineralization on several of these veins which can be followed up in future exploration programs.
Additionally, the strike extents for most known veins have been identified, however in most cases, mineralized shoots at depth have not yet been defined nor have the down dip extensions been drilled out.
There is also potential for additional mineralization to be identified on many of the veins with further drilling.
AVM have around ~2M in the bank by my estimate, and given management have not opted to raise capital with this acquisition, it suggests to me that they believe any future raises will be done at a higher share price, likely following drill programs.
Further, I expect funds will be diligently utilised noting the team are likely to have significant existing data to generate exploration and drill targets in the short term.
The technical report by Golden Minerals had some interesting commentary on some of these exploration target veins, which I have extracted below.I think that much like AVMs peers, the other three ASX listed silver stocks which have projects in LATAM, ASX: MTH, ASX: USL, ASX: ASL, AVM has significant upside potential with respect to a potential maiden JORC resource.
Bonanza Grade Silver Drill Intercepts
Golden Minerals has reported bonanza grade drilling intercepts of silver across its three previous drilling campaigns which highlight the significant high grade silver potential of this project.
I have listed some of these results the below table, in addition to some highlight drilling intercepts from AVMs peers.
In my opinion AVMs drill intercepts hold their own against their South American peers, particularly due to their high grade, albeit an increase in thickness would be a game changer for AVM.
After reading the Geotechnical report, in particular the commentary which states it is likely some veins will increase in thickness at depth, I think it is probable we will see AVM deliver some thicker, high-grade silver hits over the coming months.
It is important to note that the mineralization style featured at the Yoquivo project, and more broadly across the Sierra Madre (and similar regions), are made up of epithermal veins systems, which are typically thin in width however extend from surface to hundreds of meters in depth.
See section examples below from both AVM & USL:
ASX:AVM
ASX:USL
If This Project is So Prospective Why Are Golden Minerals Selling It to AVM?
Reviewing this announcement, I was scratching my head as to why Golden Minerals are selling the Yoquivo Project and trying to find the red flags.
However, after looking at the Golden Minerals website, it’s quite clear why they are selling their asset:
ASX Silver / Gold South American Junior Explorer Peer Comparison
In the first instance, it is evident from across all companies that news flow from ASX listed silver explorers is being well received by the market. This is evident from all AVMs peers now trading near their 52-week highs, which is multiples from their 52-week lows.
What I did find more interesting however, when trying to determine a potential valuation of AVM post-acquisition & after future exploration programs, was what I perceive as a significant mis-calculation by the market, in which lies the opportunity.
Capped at ~$6.7M, AVM offers a very attractive investment case noting that its next closest peer (MTH) is valued at ~14x that of AVM.
AVMs boasts some notable features such as their 410 g/t Ag, which is exceptionally high grade. For example, ASL is AVMs closest peer, boasting 146 g/t Ag in comparison. Acknowledging AVMs current overall AqEq does have room for growth, I still find this a promising feature of the Foreign Estimate, noting the overall tonnage does not have to be as significant if the mineralisation can maintain its high grade.
Recognising there will be slight nuances between companies, when comparing each companies EV / Resource Ounce ratio, we can approximately evaluate which companies are trading at a premium or a discount relative to their peers.
Whilst not always the case, a lower EV/Resource ounce ratio can assist in identifying undervalued companies.
Based on these results, the combined EV / Resource Ounce Average derived from AVMs peers is 1.55.
To bring AVM in line with the average ratio, that requires an approximate ~570% (5.7x) increase from its current valuation.
In my opinion this supports my thesis that AVM is currently undervalued in comparison to its South American peers, and offers a re-rate opportunity not only on any exploration success but in general should the market recognise that it is currently undervalued.
MTH & ASL Have Provided The Blueprint for Success and the Market is Rewarding High Grade Silver Intercepts
Over the past two years, both AVM & MTH have been under performers which has seen their respective share prices capitulate.
However, MTH turned this around in a matter of months when they re-listed on the ASX 22nd May 2024 with their Copalquin District Silver Project containing an existing JORC resource of ~11Moz silver, a market cap of $8.4M and share reconstruction.
MTH has also just announced (28th October 2024) a $12.5M placement highlighting the markets strong support for prospective silver focused explorers.
I think that AVM is at a similar stage to where MTH was only ~2 months ago, after having changed its management team, undertaken a raise and now acquired a new prospective silver project.
The big difference however is AVMs market cap is 14x less than that of MTH, despite their Foreign Estimate being only half the size of MTHs, which in my opinion leaves more upside reward for shareholders.
We can see the significant re-rate occurred when MTH returned a drill result of 7.00m @ 144 g/t gold, 1,162 g/t silver from 18m, and its share price rocketed by over 400% in just a few days.
Clearly the market is rewarding high grade precious metal drill hits.
If you compare this drill intercept to Golden Minerals historical 6.2m @ 17.19 g/t Au and 2403.5 g/t Ag, I think it makes for an interesting few months ahead when AVM undertake some drilling.
MTH currently has a market cap of ~$90M (14x more than AVM) and looks to still be in an upward trajectory.
Looking at Andean Silver (ASX:ASL) as a more established explorer of silver in South America over the past two years, the comparison of the silver spot price & ASLs share price clearly demonstrates that with an increasing silver price, the company share price generally also tracks upwards in parallel.
Over a period of approximately 12 months, ASL share price has gone from ~$0.25 to ~$1.56, whilst the silver price has run from ~$US 22/oz to ~$US 34/oz.
The time line of ASL provides an extremely attractive pathway of success that I believe can be emulated by AVM
This provides me with confidence that if AVM management execute on exploration programs and the silver price keeps running, AVM’s share price has a high probability of following the same upwards trajectory as ASX:ASL.
It is worth noting MTH have also followed the exact same pathway as ASL, noting their recent drill results followed by a large share price assentation and sizable $12.5M raise to expedite further drilling and a resource upgrade.
This clearly demonstrates the prospectivity of silver focused explorers within this jurisdiction and the markets continued support if exploration success can be delivered.
AVM appoints highly experienced Managing Director Adam McKinnon with recent history of leading multiple silver-gold discoveries
On the back of AVM’s Yoquivo acquisition, AVM has just announced the hiring of an outstanding and well-regarded Managing Director and CEO, Dr. Adam McKinnon.
Adam is an exploration and mining executive with an extensive background in the discovery and development of silver, gold and base metal deposits.
As evident through only a small snapshot of Adams career timeline, we can ascertain Adam has a clear history of success, having quite literally led or been involved with a base metal, silver and or gold discovery at every company he has been associated with.
Based on Adams achievements, in my opinion he is a perfect fit for AVM due to his disposition for not only discoveries, however development and growth of deposits which is exactly what the Yoquivo project requires.
His recent discoveries which he has been involved in include
:
Adam also holds a PhD in geochemistry and mineralogy from Western Sydney University, with a study focus on exploration for base metal, silver and gold deposits. His PhD research included significant research on the silver mineralogy of key deposits in the Cobar Basin in central New South Wales.
Low Risk Profile
AVM share price has been badly beaten over the past 12 months, decreasing from ~$0.08 to ~$0.02, with seemingly the downside now completely baked into the share price, however that is exactly the time I like to enter a company.
All the stale shareholders have likely given up and sold shares on the cheap, a new board has taken over and the company is now taking a new strategic direction.
Currently trading at multiples lower to its peers and with sufficient funds to undertake an exploration campaign, this leaves only the upside left in my opinion.
Disclaimer - This research article was commissioned and funded by Advance Metals Limited. The material contained in this article is for information purposes only. This article is not an offer or invitation for subscription or purchase of, or a recommendation in relation to, securities in the Company and neither this presentation nor anything contained in it shall form the basis of any contract or commitment.
This presentation is not financial product or investment advice. It does not take into account the investment objectives, financial situation and particular needs of any investor. Before making an investment in the Company, an investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances, seek legal and taxation advice as appropriate and consult a financial adviser if necessary.
This article has been prepared based on information available as at the release date and has not been independently verified. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Advance Metals Limited or its subsidiaries or affiliates or the directors, employees, agents, representatives or advisers of any such party, nor any other person accepts any liability for any loss arising from the use of this presentation or its contents or otherwise arising in connection with it, including without limitation, any liability arising from fault or negligence on the part of Advance Metals Limited or its subsidiaries or affiliates or the directors, employees, agents, representatives or advisers of any such party.
