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Gold and Silver Co. With Mexican Project Is Undervalued

Source: Bereket Berhe


November 10, 2023 ( Newswire) On November 1, analyst Bereket Berhe of Beacon Securities iniated coverage on Sierra Madre Gold and Silver Ltd., which he believes is undervalued.

Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) is focused on restarting production at its fully permitted La Guitarra silver mine in Mexico and advancing exploration at its Tepic and La Tigra projects, noted Beacon Securities analyst Bereket Berhe in a November 7 research report.

This report initiated coverage on Sierra Madre with a Speculative Buy rating and CA$0.75 price target.

La Guitarra Resource Grows Substantially

This month, Sierra Madre delivered an updated NI 43-101 mineral resource estimate for La Guitarra that increased the project's global resource by 275% to 47.3 million ounces silver equivalent.

The indicated resource rose 373% to 27.2 million ounces silver equivalent, and the inferred category grew 204% to 20.2 million ounces. The resource is contained within multiple epithermal vein systems across the 39,714-hectare property.

According to the analyst, Sierra Madre acquired La Guitarra in an all-share US$35 million deal, gaining a past-producing mine with substantial existing infrastructure. The company is fast-tracking a restart.

Near-Term Production Within Two Years

La Guitarra was in production from 2015-2018 before being placed on care and maintenance, averaging 1.0-1.5 million ounces silver equivalent per year.

Berhe highlighted that reopening the mine is significantly de-risked given the permitted processing plant, legacy underground development, and Sierra Madre management's prior experience operating La Guitarra.

The analyst sees the potential for Sierra Madre to resume commercial production within 1-2 years using the existing 500-tonne-per-day mill. The company could then expand throughput to 1,000 tpd.

Tepic and La Tigra Offer Additional Upside

Beyond La Guitarra, Sierra Madre's portfolio includes the Tepic project with over 10 million ounces silver in historical resources and the La Tigra property containing a past-producing underground gold mine.

The analyst believes current exploration results at Tepic and La Tigra highlight these assets' potential to add value.

Undervalued Relative to Precious Metals Developer Peers

Beacon Securities initiated coverage of Sierra Madre with a Speculative Buy rating and CA$0.75 price target. The firm sees the stock trading at a discount to comparable junior precious metals developers on EV/resource ounce and price-to-NAV bases.

The analyst's price target is derived from a discounted cash flow model for La Guitarra, producing 1.77 million ounces silver equivalent annually. Even assuming just 58% of the current resource, the model generates a CA$189 million NAV for the project.

In summary, the analyst views Sierra Madre as undervalued based on progress advancing La Guitarra towards a near-term restart of production. With exploration upside from Tepic and La Tigra, Beacon Securities sees potential for the stock to re-rate as the company delivers on its development plans.

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