Aurcana's (TSX-V: AUN) updated resources at La Negra mine - a remarkable 27-fold increase to 115 million ounces silver plus base metals over a previous resource estimate - garnered widespread approval, even surprise, from analysts covering the junior silver miner.
Casimir Capital increased its price target to C$1.35 from C$1.70, while Stonecap Securities upped its forecast from C$1.20 to C$1.50. A hold-out was Roth Capital Partners, where analyst Brian Post preferred to maintain a C$1.50 buy target until the resource estimate is filed with regulators, giving more details on La Negra mineralization.
Still, Aurcana's leaping silver resources wowed Post. He called the resource update "massive" in a note to clients and said in an interview Wednesday that while a strong resource update was expected, the sheer scope of the increase was "pretty impressive."
What it means for Aurcana production at La Negra, which recently expanded to 2,500 tonnes per day, is not clear. Gary Lindsey, Aurcana's corporate relations consultant, said the silver miner had yet to define possible expansion at La Negra given the resource increase.
"We will just keep doing what we've been doing," Lindsey said, referring to mine expansion at La Negra since Aurcana started operating it in 2007 at 1,000 tonnes per day.
"Where we reach a maximum (operating rate), we're not quite ready to state."
Undoubtedly this was an impressive resource increase and some standout numbers help put the new La Negra resource estimate in perspective. The quantum leap comes on the back of extensive historical exploration at La Negra, where, as Lindsey pointed out, there are already 60 kilometres of underground workings. In all, the new resource was based on 16,422 diamond drillholes and 22,289 channel samples.
Yes, that is 16,422 drillholes and not metres of drilling, Lindsey confirmed. Some of that drilling is Aurcana's, while much of it comes from Peñoles', which owned and operated the mine between 1970 and 2000.
As for the scale of the increase: Aurcana had previously reported 4.2 million ounces silver @ 105 g/t silver at La Negra, plus base metal credits, in measured and indicated resources. With the new measured and indicated resource, 115 million ounces silver @ 131.3 g/t plus base metals, Aurcana's silver ounces at La Negra jump an eye-popping 27 fold.
Though worth noting: Aurcana president and CEO called it a 50-fold increase, assuming an older resource of 2.3 million ounces silver in measure and indicated resources. However Lindsey confirmed Rodriguez erred and that the last resource was in fact 4.2 million ounces silver, measured and indicated, a fact an analyst had pointed out to Mineweb.
But perhaps Aurcana can save the 50-fold statement for a later date, as more silver looks to be on the way as well. Aurcana and analysts noted that the latest update, comprising 13 skarn deposits at La Negra, did not include some 15 other deposits in the northwest La Negra trend where silver grades tend to be higher. In a note to clients, Post reckoned a resource for these would be out in the first quarter 2013.
If Aurcana - busy ramping up its Shafter silver mine in Texas - wasn't yet laying down new mining plans at La Negra, the implication of a 27 million tonne resource with 115 million ounces silver was clear. Assuming Aurcana mines all or most of the ounces at the current 2,500 tonnes per day, it could run La Negra for some 30-odd years.
More probable though, as Rodriguez intimated, Aurcana will at some point expand La Negra to take advantage of the added resources. Post, at Roth Capital Partners, expected Aurcana would turn the focus back on La Negra in 2013 with an eye to expansion after it brings the Shafter mine to production.
Aurcana's Lenic Rodriguez, president and CEO, and Nils von Fersen, vice president of exploration, were unavailable for comment on Wednesday.
It's amazing to me that the La Negra resource boost hasn't done much for AUNFF despite silver trending several dollars higher. The sharp three day drop right after earnings and before the big announcement was very fishy IMO. What a convenient way to pick up a bunch of cheap shares at 80 cents! Earnings were small in Q2 but the average selling price was only $28/oz and you've got to figure they are spending a lot of money at Shafter getting things going.
Aurcana looks good to me here. Chart is very strong. The 5 year chart is a massive cup and handle formation and the "handle" is also comprised of a smaller cup and handle! So I'll coin a new term and call it a double cup and handle LOL. The stock certainly can't be considered overbought because its been going sideways for a month on great news. It also has been periodically banging the $1-$1.10 area for almost 2 years and is destined to break thru and run to mid $1 resistance once it does. And the all time high I think was $1.99 back in 2007.
Aurcana is a lot different company than it was then. They had a lot less shares outstanding, but they also had one of those SLW deals on the silver that was really bad for them. They managed to get rid of all that, which was not cheap, and that is why they have 500M shares all in. I think a 1 for 5 or 1:10 reverse split would work very well and get the stock price higher so institutional investors can get interested,.
Everyone should view the Denvergold presentation where the CEO mentions that besides the large shareholders on the slide, the head of Blackrock approached him at the show and said they should add them because they had picked up over 5% of the company. The growth profile here, besides the OBVIOUS growth from a 1M oz producer to 6+ in another year is even better than I imagined. The CEO is a soft spoken man, but he says they are shooting for 10M ozs Ag production in 2015 which will involve mill expansions. La Negra has went from 1000 tpd to 2500 tpd and I think he said they could do 5000 tpd and Shafter would get bigger too. Not too shabby when you think about it: 2 silver projects producing more silver than First Majestic does today in only a couple more years. AG is going to go to 16M oz and then 20M with the Silvermex deal, I'm not trying to say AUNFF is better than AG, don't get me wrong, but AUNFF does have steeper growth profile. What if silver is $125? We all know the 50:1 silver:gold ratio is BUNK and its going a LOT lower in years ahead. It will be like Fourth of July fireworks for a long time for these stocks.
If the silver to gold ratio went to 30:1 like it did when silver approached $50 and gold was only $1500 in 2011, then Aurcana's 10M oz target in 2015 would be 333,333 gold equivalent ozs production! That's mind boggling considering this stock has traded around only a $400-500M market cap the last two years. I think the stock is trading for like 3.5 times next yr cash flow and 2 times 2015 eps. Not even using a silver price higher than today! It could and probably will be way better.
Aurcana is going to get the First Majestic treatment on the next silver upleg. Like AG, Aurcana was once just a 2-3M oz producer but came to be a 6,7,8,9, and eventually 10M oz producers and will get the big rerating combined with explosive revenue and earnings growth.
I sold half my Aurcana at $1 early this year and feel VERY fortunate that I have been able to recover my full position with buys in the 80s and topping it off at just 5 cents more.
I sold some #$%$ Golden Star today and bought another block of Aurcana. I feel good to jettison a crap stock making a big pop at $1.94 and buy Aurcana for a buck. Gold investors are trying to sift thru severely beaten down names hoping for a big rebound, but they are ignoring a can't miss big pop in Aurcana in the next couple years that will eventually be multiples of $1.07 Even when Aurcana is $2 and has $1B market cap, that won't seem like a lot considering 10M ozs of LOW COST production is ahead!!!
AUN is the perfect silver stock now, beating down the door of long term resistance with eccellent techincals on the chart and room for a very large measured move. Only a major delay at Shafter could sidetrack things.