First Majestic is buying Silvermex and La Guitarra for $175M in stock. La Guitarra is only 320 tpd and produced 750k Ag-eq last year. Velardena will be double that run rate at end of 2012 and 4-5x that run-rate in the next year as the mill is expanded.
At 3.5M Ag-eq oz next year and a $20 margin on silver (assuming silver stays landlocked at $30 that should be about $70M cash flow, or $2 per share. Then we can talk about going to 2000 tpd. And drill off another 30M ozs at El Quevar and keep grooming it.
I think at some point in the next year, AUMN is valued like a producer and not an explorer. Their 200+M ozs should be valued at $3-7 like all silver producers. That's giving no credit to the 2M oz gold or all the lead and zinc. Implying $600M to $1.4B market capitalization to be in-line with peers. Or $18-40 share price.
I wouldn't look past PAAS making another move. They have been very quiet there for several years besides the Minefinders deal. AUMN would be an ideal bolt on aquisition they could fund entirely with cash. They walked away from Orko's La Preciosa and Navidad is a long long way away from production. Velardena would be another Mexican jewel to go along with its problematic Peru mines. And increase their presence in Argentina at the same time.
I am ultrabullish AUMN in the longer term, but even a more agnostic could see this is a good $5-6 to $10-11 range trade opening up imo. Silver wants to be $40-50. $20 silver means all the available bullion will get sucked up like a vacuum cleaner and major shortages and industrial user panic so no need to harbor delusions about low gold or silver prices in the medium to long term.
In their April 2012 presentation, AUMN has more in the ground (Ag equivalents) than AG (First Majestic), the latter valued 7 times higher in stock price, nonetheless. The undervaluation of AUMN, in terms of in situ of a producer, is obscene, a little known synonym for "obscene": "opportunity". Also, I think the people shorting this thing are going to have to dig real hard for cheap shares these days to cover: if the shorts are still at almost 3 million shares, I don’t know where all the losers (that is, people willing to take a loss) are going to come from that haven’t been shaken out already. Excellent analysis, by the way. Thank you.