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Great Panther Silver Ltd: THE INVESTMENT CASE

Acquisition of Coricancha will boost Great Panther's silver production by 75%

Great Panther's acquisition of the Coricancha mine in Peru marks a step-change for the company, and there could be more deals to come
Acquisition of Coricancha will boost Great Panther's silver production by 75%
INVESTMENT OVERVIEW: GPR The Big Picture
Great Panther's silver production is set for a significant boost

Dilution? No, sir.

The latest deal from Great Panther Silver Ltd (TSE:GPR) may have transformed the company’s production profile at a stroke, but it comes at zero additional dilution to shareholders and at a pretty modest initial cash outlay too.

Great Panther will pay a mere US$100,000 on closing the acquisition of the Coricancha polymetallic mine from Nyrstar (EBR:NYR), with up to US$10 mln coming only after the project has been successfully put back into production, and even then incrementally in the form of 15% of free cash flow over a five year period.

The real cost involved will be incurred by Great Panther internally in getting the mine up and running again. The bill for this is currently estimated to run to around US$25 mln, although a more precise figure will be forthcoming once a Preliminary Economic Assessment is completed.

That’s not likely to take long, according to Great Panther chief executive Bob, and at that point he’ll be able to talk more about the likely costs, margins and profits that will be involved.

“It’s going to take us a little while once we’re in possession to do a dedicated evaluation of what it’s going to take to bring it back into production,” says Archer.

“Until we get a PEA in place we can’t publicly talk about economics. We’ll be updating the resource probably in the second quarter. What’s there now has to be considered as historical, but the grades are certainly very good. You need that because it’s a narrow-vein deposit. Overall it has the potential to deliver three million ounces of silver equivalent production annually.”

Great Panther is already well-established as a silver and gold producer from a suite of assets across Mexico, but this move into Peru looks set to boost production by 75%.

Hardly surprising then that Archer is upbeat in the wake of the deal. With this one under its belt, there could be more to come from the company.

“We’re pretty excited,” he says. “We’d like to see this as a foundation for continuing to build in Peru. It’s not a one-off. We’re still looking for something else. And we’re also still looking in Mexico.”

The deal for Coricancha took two years to put together, but Archer is hopeful that now that Great Panther has a foothold in Peru, the next deals will come together more easily.

“A lot of the mid-sized deposits in Peru are owned by private families. It’ll be a lot easier for us to get to know them once we’re established in the country.”

That’s a process that’s now getting underway as new recruits are being signed up, the existing care and maintenance team is being added to, and thoughts are now turning to the wider deployment of the US$25 mln that will be required for the restart.

Finding this cash won’t be problematic – it’s sitting there on Great Panther’s balance sheet, and has been since the last spike in the silver price in the summer, when the company raised US$30 mln.

But even back then it was already sitting on top of a substantial cash cushion, such that when the Coricancha deal was announced just before Christmas, the company also revealed that it had US$54 mln in the bank.

That should be ample to fund the redevelopment work at Coricancha, even if the numbers do shift a bit, while the left-over cash will surely provide the cornerstone for Great Panther’s next deal.

When and how that happens remains to be seen, but this is a company that’s changing all the time - shares in Great Panther sat at C$0.71 per share at the beginning of January last year. They opened 2017 at C$2.22, a threefold rise in just 12 months. That rise is a reflection of a metals and mining market that’s come alive during that time, to be sure.

But it’s also a reflection of a company that’s been active, that’s done deals, raised cash, and continued to invest in production. 

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Great Panther's acquisition of the Coricancha mine in Peru marks a step-change for the company, and there could be more deals to come
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