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Great Panther Silver Ltd: THE INVESTMENT CASE

Great Panther Silver embarking on new phase of expansion and growth, supported by solid suite of Mexican assets

Great Panther's solid operating cashflow set to provide platform for significant growth
Great Panther Silver embarking on new phase of expansion and growth, supported by solid suite of Mexican assets
Silver pour at Guanajuato

Expect plenty of action from Great Panther Silver (TSE:GPR) in the coming months.

New chief executive James Bannantine is now beginning to get his feet under the desk, and used to the idea that he has a company with two producing mines, one potential mine, and enough cash in the bank to buy at least one more project outright, before the option of issuing paper has even crossed anyone’s mind.

READ: Great Panther Silver says it delivered on all production targets and made significant investments in 2017

Indeed, it’s an enviable position.

Great Panther’s Guanajuato and Topia mines in Mexico both have long-established track records of production. In the most recent set of financials, for the year to 31 Dec 2017, they accounted for US$64mln of revenue and mine operating earnings before non-cash items of US$22mln.

All-in sustaining costs are running at US$14.72 per ounce of silver equivalent, allowing for decent enough margin at today’s prevailing silver price of well over US$16.00, and quarter-on-quarter costs are on a downward trajectory.

But as he sits down to begin a short presentation to a select gathering of interested fund managers in London, Bannantine’s opening remarks set the tone for what is to follow.

“I think Great Panther should be bigger,” he says.

“That’s why I’m here. We have positive net income and positive cashflow as a foundation, and there’s value in the existing operations with nothing new added.”

But an addition has already been lined up. Last year, Great Panther finalised the acquisition of the previously-worked Coricancha project in Peru, and putting this into production will be one of Bannantine’s key priorities.

The potential returns are significant. Great Panther picked this project up from Nyrstar for US$100,000, securing as part of the transaction a closure bond from Nyrstar to cover any potential environmental costs if the project doesn’t go ahead.

“We’re optimistic on the potential of this mine,” says Bannantine. “The key is to generate enough ore feed to the plant. Our plan is to expand the number of working faces on the mine.”

It’s an operation that will require considerable skill.

“It’s a 60cm vein,” explains Bannantine. “So it’s very narrow. It needs to be mined carefully. But we have a definite plan for that in a design that will be published in April or May in an updated feasibility study.”

Overall, the idea is that Coricancha will add around 3mln ounces of silver production to the existing 4mln ounces that comes out of Guanajuato and Topia per year.

It will be a significant forward bound, but don’t expect the growth to stop there.

Great Panther is currently sitting on a cash pile of around US$60mln, with no debt spike the strength of that firepower.

“We intend to use this money to acquire another project,” says Bannantine.

READ: Great Panther Silver unveils near doubling of estimate of mineral resources at Guanajuato

Precisely when or where isn’t yet clear, but the preferred locations for any target are Mexico, Peru, Brazil and Colombia, in that order. The ideal project would either be silver or gold, and would be in the later stages of development - “something that’s either operating or needs fixing,” says Bannantine.

Interest in such a deal when it’s finally put together is likely to be significant. There’s a general consensus that the mining markets are now on the turn, although Bannantine, as a former private equity fund manager himself, notes that there has been no general switch into mining quite yet.

If it’s underway by the time Great Panther inks its deal, then there could be significant potential for a real boost to the share price.

And that’s not the only upside. More immediate perhaps is the potential benefit from improved metals prices. Gold and silver have already both demonstrated a propensity to new strength this year, and if the dollar stays weak and metals prices soar, the read-across to Great Panther will be significant.

“In silver,” explains Bannantine, “if the price goes up 20%, your stock price can go up by 80% because margin goes up by 80%.”

That’s the benefit of a fixed-cost base, and the proof can be found straightforwardly enough in Great Panther’s own share price, which rose significantly at the beginning of 2016, when silver took its first run towards US$20.00 in a couple of years.

This is a company with strength in depth, and a bright future ahead of it.

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February 27 2018
Great Panther's solid operating cashflow set to provide platform for significant growth
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