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Golden Arrow Resources: THE INVESTMENT CASE

Golden Arrow Resources continuing towards production in Argentina

In May, the group formed a joint venture, which combines the Chinchillas project with Silver Standard's producing Pirquitas operation in Argentina
Golden Arrow Resources continuing towards production in Argentina
INVESTMENT OVERVIEW: GRG The Big Picture
Pictured: workers at Golden Arrow's Chinchillas project

Earlier this year Golden Arrow Resources Corp (CVE:GRG) chief Joseph Grosso lauded his firm's Argentinian joint venture with Silver Standard Resources (TSE:SSO), now SSR Mining Inc,  saying it was a "classic win-win".

In May, the group formed a joint venture called  Puna Operations Inc (POI), which combines its Chinchillas project with Silver Standard's producing Pirquitas operation in Argentina.  An exploitation permit for Chinchillas is now awaited.

"In one transaction, Golden Arrow has leapfrogged into producer status overnight and secured itself a substantial part of the residual production value (and immediate share of the revenues) at Pirquitas and brought much closer the pipeline value of Chinchillas, which would otherwise have been a long and expensive slog to production," Grosso had said.

World's eighth largest silver mine....

The combination creates the eighth largest silver mine in the world with an 8-year mine life and output of 8.4 million silver equivalent ounces per year.

Golden Arrow shall have an immediate share of Pirquitas revenues, much lower capex requirements and Golden Arrow is eyeing first production from Chinchillas in the second half of 2018

Silver Standard will be operator..

Silver Standard will be operator of the combined assets, with a 75% stake in the joint venture, while Golden Arrow will have a 25% stake.

Grosso notes that putting Chinchillas into production alone would likely have cost Golden Arrow in the range of US$300mln to US$350mln.

Golden Arrow will receive around US$15mln as a 25% share of the Pirquitas earnings since October 1, 2015.

In addition, Golden Arrow will receive 25% of profits from the substantial stockpile at Pirquitas, which has an estimated value of  $45-million to $60-million which will continue to be processed until Chinchillas start trucking its ore to Pirquitas.

Positive pre-feasibility...

A pre-feasibility study envisaged a satellite open pit mining operation at Chinchillas with ore processing undertaken using the existing mill and concentrator facility at Silver Standard's Pirquitas, around 42km west of Chinchillas.

The PFS forecasted average annual silver-equivalent production of 8.4mln ounces over an eight-year period with "robust operating margins”.

The post-tax net present value, using a 5% discount rate and metal prices of US$19.50 an ounce silver, 95 cents per pound of lead and US$1 per pound of zinc, was put at US$178mln.

An investors presentation shows that net revenue could reach over US$1 billion with post-tax cash flow of $267mln, a 29.1% internal rate of return, and a 3.5 year payback period.

These are compelling economics for Golden Arrow that has  a market cap of around C$53mln.

Plenty of upside...

On the upside, noted Grosso, the existing resource is confined so far to only 40 hectares of a block of about 2,000 hectares. Work will be carried out with a view to proving up resources to enable the creation of satellite pits, he said.

"That in turn would auger well for the extension of mine life significantly beyond the currently planned eight years."

Chinchillas currently hosts mineral reserves of 11.7 million tonnes containing 58 million ounces of silver at a grade of 154 g/t, 310 million pounds of lead at a grade of 1.2% and 127 million pounds of zinc at a grade of 0.49%.

And don't forget Antofalla..

The firm is planning to kick off a 3,000 meter (m) drill program at the Antofalla silver-gold base metal project in Argentina in the fourth quarter of the year, having identified significant targets  in the first part of the US$2mln exploration program.

Meanwhile, work is expected to start at its Pescado gold project in San Juan province.

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