Vizsla Silver: Lucrative Silver Mine On Hands And Cyclicality Could Offer Entry

seekingalpha09-24

Reiterated "Hold" rating on Vizsla Silver Corp. stock due to ongoing progress in Panuco project and positive market sentiment for precious metals.Lower interest rates and geopolitical uncertainties ...

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This analysis reiterates a “Hold” rating on shares of Vizsla Silver Corp. (NYSE:VZLA), a silver/gold explorer in the emerging silver- and gold-rich Panuco-San Dimas Corridor in Mexico's Sinaloa state. The same rating was assigned in the previous analysis. The Reason for “Hold” Rating The team of explorers and financiers continues to report progress towards the goal of establishing precious metals production at the Panuco silver-gold discovery in the 17,856.5-hectare former producing area. The company's project is located in an area that appears to have significant mineralization and has the necessary infrastructure and permits in place. The market is happy about that, and its positive sentiment is helping to ensure that the share price remains tied to the bull market for gold and silver, which are now expected to experience another strong momentum. Market participants are banking on a rebound in gold and silver, fueled by the easing of monetary policy that the Federal Reserve kicked off on September 18 with a jumbo 50 bps interest rate cut to 4.75%-5%, and by safe demand for precious metals amid uncertain global growth and geopolitical issues. Lower interest rates increase demand for gold and silver because these metals do not yield income as U.S. Treasuries do. Uncertain global growth and geopolitical issues are causing investors to flock to the safe haven properties of gold and silver to protect the value of their assets. In addition, lower interest rates will also cool the US dollar, and since silver and gold are traded in US dollars, they become more affordable to foreign investors and traders, encouraging these individuals to purchase the precious metals. Vizsla Silver shares, which are positively correlated with the precious metals, should also benefit from the tailwind of the high gold-silver ratio because it currently looks like this: as of this writing, the Gold Spot Price (XAUUSD:CUR) is at $2,622.69/oz and Silver Spot Price (XAGUSD:CUR) is at $30.64/oz, resulting in a gold-silver ratio of about 85.6. According to Kitco.com, Prosper Trading Company CEO Scott Bauer has pointed to “historically high gold/silver ratio as evidence that the gray metal is due for a rally”, as reported by Seeking Alpha news editor Carl Surran on August 14, 2024.  Scott Bauer said: “Historically, when the ratio has topped 80, it has signaled that silver is inexpensive relative to gold,\" Bauer says. \"The last three times this happened, silver rallied 40%, 300% and 400%. When the ratio has fallen below 20, it has signaled that gold is inexpensive relative to silver.”   As “often viewed as an affordable alternative to gold for investors”, according to Arundhati Sarkar, Seeking Alpha News Editor on August 12, 2024, with silver being cheap relative to gold, the particular economic cycle or headwinds for portfolios from challenging macro-geopolitical environment leads investors to seek the same traditional properties of gold in the grey metal, which is not coincidentally called “poor man's gold”. The price of silver will also be driven up by shortages in the silver market this year. According to the Silver Institute, silver supplies will be severely inadequate, leading to the second-largest shortage on record this year. Against this background, industrial demand for grey metal will continue to rise due to the increasing use of solar panels after a record year in 2023, according to the Silver Institute. However, from current levels, as this analysis will illustrate, the share price does not seem to have enough room to gain the kind of momentum that everyone is sure gold prices will now have under the boost of the factors just mentioned. This implies that the stock price will likely need a healthy pullback before it is able again to reap completely the benefits of the bullish gold cycle. From Last Analysis: This Is What Happened Since the last analysis on June 14, 2024, the market value of Vizsla Silver Corp. shares has developed positively in accordance with the “Hold” rating given at that time as the correct stance for this stock. Vizsla Silver Corp. or VZLA shares are up 14.79% on the NYSE as of this writing, significantly outperforming the US stock market as represented by a +5% change in the S&P 500. Investors were advised to keep the door open to the possibility of adding shares to their Vizsla holdings if the stock price traded low due to cycles in the precious metal. In fact, the NYSE offered the possibility of low stock prices in the following cases:  In early August, there was temporary profit-taking in the precious metal to offset losses in other assets, as Commerzbank AG (OTCPK:CRZBF) (OTCPK:CRZBY) analysts suspected based on short-lived trends observed in the past. The losses in other assets, as readers will recall, occurred amid a general sense of panic in the markets following a slight deterioration in US employment. In early September, sentiment toward gold and silver prices cooled somewhat as mixed U.S. labor market data, interpreted as boosting rather than containing inflation, raised doubts about the extent of possible interest rate cuts by the U.S. Federal Reserve at its September 18 meeting, thus providing an argument for U.S. Treasury bonds, which are strong competitors for the precious metal.  Then there was another significant drop in Vizsla's share price around September 16-17, when the stock market was surprised by Vizsla Silver revealing $65 million in bought deal financing for the exploration, drilling and development of its Panuco silver-gold project. In our opinion, the reason is that Vizsla's decision was announced at a time when the Fed was practically on the verge of launching its easy monetary policy, paving the way for cheaper access to credit, which is often seen as a better option than the consequences of bought deal financing. And the jumbo 50-bps rate cut may have provided a significant boost to loosening credit conditions. The market viewed Vizsla's move as unfavorable because earnings per share would be lower in the future due to the increase in the volume of common shares associated with the bought deal transaction, and as we know, earnings are a strong driver of stock market sentiment. These are things that, of course, usually cause strong mood swings in the short term and that many people in the market speculate on. As widely anticipated, the factors driving Vizsla's shares higher were primarily the following: a) Vizsla Silver's continued progress in consolidating several precious metals deposits identified in a specific area of the Panuco gold-silver district as exploration results reported additional continuity and expansion of mineralization. The exploration results are important as they provide the foundation for the construction of a silver-gold mine; b) rising gold/silver prices amid growing hopes for a turnaround in Fed policy and investors' search for safe-haven assets amid a risky and uncertain global environment. The company also issued “exceptional economics for Panuco in the preliminary economic assessment (“PEA”)”, and in the previous analysis, the planned PEA in the second half of 2024 was indicated as one of the upside potentials to consider holding this stock in the portfolio. Geopolitical issues and hopes of interest rate cuts were so buoyant for gold and silver prices that they caused two new all-time highs in the price per ounce: a) the first at the end of July was considered relevant from a psychological point of view; b) the second at the end of August. Following those two record highs in price per ounce, Vizsla Silver shares hit a new high on Sept. 13 as analysts predicted another strong bull market for precious metals, with a gold price of $3,000 per ounce possible by mid-2025, according to $Citigroup Inc(C-N)$. (C) Aakash Doshi, head of North American commodities at Citi Research, reported Carl Surran, SA News Editor. Analysts at Trading Economics have produced the following estimates for the future price per ounce of gold and silver: Gold, which has gained 27.2% since the start of 2024, is expected to reach $2,623.27 in the 12-month horizon, but according to the current uptrend, these forecasts are destined to be beaten by the commodity. Silver is up more than 29% since the start of 2024, and it has been estimated to reach $31.78 an ounce in 12 months, but current tailwinds are likely to push the price of the silver ounce beyond analysts' target. Due to the strong positive correlation between the share price of Vizsla Silver Corp., or VZLA, and the price of silver or gold, we believe that shares of this exploration company will likely trade above current levels as prices of gold and silver continue to move upwards. The following chart illustrates the strong positive correlation between the stock price of Vizsla Silver Corp. or VZLA (blue line) and the spot price of gold or XAUUSD (golden yellow line) or the spot price of silver or XAGUSD (silver grey line). The positive correlation is shown through a “CC XAUUSD” or “CC XAGUSD” curve (see the bottom of the chart) that has traded predominantly in positive territory over the past 5 years. The yellow and grey area curves have almost always been above zero over the past five years, which is a strong indication of a structural positive correlation between VZLA and precious metals. Source: Seeking Alpha The positive correlation means that if the precious metal is trending upwards, the VZLA shares are most likely also rising, and if the precious metal is trending downwards, the VZLA shares are most likely also moving to lower levels. This is true regardless of the returns on the securities, which can even differ significantly at the end of a period under review. The analysis of the correlation has nothing to do with the resulting performance at the end of a period, but rather helps to estimate whether 2 securities on average tend to move in the same direction or not. About Vizsla Silver at the Panuco Silver-Gold Project in Sinaloa, Mexico: Economics for Panuco in the Preliminary Economic Assessment (\"PEA\") and Update on the Panuco Silver-Gold Project The independent Preliminary Economic Assessment (“PEA”) of Vizsla Silver’s 100% owned flagship Panuco silver-gold project enhances the likelihood of creating multi-year profitable silver and gold production using underground techniques and low capital investment to bring the site into production. Source: Vizsla Silver Corp. - Company Presentation The robust economic figures included in the PEA are based on fairly conservative price assumptions for precious metals. The PEA assumes $26/oz for silver and $1,975/oz for gold, while silver currently trades at $30.64/oz and gold at $2,622.69/oz in the spot price markets. Furthermore, for the reasons outlined above in this analysis, these prices are expected to rise significantly. The project's net present value (\"NPV\") has been calculated using a 5% discount rate. This means the project could be worth even more if the discount rate is lowered in line with the declining interest rate following the Fed pivot of the jumbo 50 basis point rate cut on September 18. The discount rate is nothing more than an interest rate. As the Fed continues to cut rates, this will increase the attractiveness of Panuco's metals project and could potentially attract market interest. Policymakers have earmarked two more 25 basis point cuts this year, another percentage point of cuts in 2025 and a final 50-bps cut in 2026. Based on a 5% discount rate, Panuco's NPV is more than $1.1 billion, or more than $4.11 per share given that there are 267.85 million shares outstanding, compared to a current share price of about $1.94 at the time of writing. This means that the Panuco project is trading at a 112% discount to the likely value based on the conservative assumptions of the PEA. The discount bodes very well for the thesis that assumes upward share price momentum, reinforcing the tailwinds from the expected rally in precious metals prices. The Panuco project has an after-tax IRR (“Internal Rate of Return”) of 85.7%, which is very high compared to the precious metals projects we have encountered for our analysis purposes to date. Typically, we've seen IRRs between 15% and 35%, so Panuco's 85.7% suggests that financially, Vizsla may have a super robust project on hand for the production of silver and gold in the future. Panuco also compares very well with other metal development projects encountered to date in terms of payback time. If it meets the PEA estimates in terms of payback period as well, Panuco will become a “world-class development project,” as stated by Michael Konnert, President and CEO of Vizsla Silver. Panuco should be able to recoup the initial investment estimated at US$224 million to build and operate the mine in nine months, as opposed to the two to four years commonly seen by us during our analysis of many other projects. This is because, due to the ramp-up period of earlier production phases and the expected continued favourable metal prices, cash flow will be very robust initially, enabling payback within a very short arc of time. In the case of Panuco, production in the early years will benefit from the high metal content of the mineral. The production rate will increase from 3,300 tonnes per day (\"tpd\") in the first three years to 4,000 tpd in the fourth year, but the deposit will produce 20,185 oz AgEq per year in the first two years, compared to an average annual production over the life of mine (\"LOM\") of 15,225 oz AgEq per year. Production will consist of approximately 60 to 63% silver and 37 to 40% gold. Thus, Panuco's primary commodity will be silver metal, and the PEA assumes that underground mining will enable workers to recover a total of 162.1 million ounces of silver equivalent (AgEq) or 15.2 million AgEq per year over the 11-year mine life. This is a very respectable production which, if confirmed by the project's next technical feasibility studies, will make Panuco one of the top 10 silver producers in the world. The AgEq will be produced at an AISC of approx. $9.40 per ounce, supporting the thesis that Panuco is a world-class mine from a high-margin perspective based on the comparison with the following estimate: the Silver Institute's interim report for 2023 showed that AISC for silver mining companies around the world averages $17 per ounce. Furthermore, these PEA estimates are calculated only taking into account that less than 30% of the mining district’s known targets have been explored. This means that ongoing and next exploration activities have the potential to significantly improve Panuco’s economics, which could have a positive impact on the share price in the future. Given the promising growth prospects emerging from the PEA and the great potential for further improvements, as additional exploration results are available, the Panuco silver/gold project is well on its way to progressive de-risking. The PEA includes a mineral resource estimate (“MRE”) based on an analysis of results from a database of 822 holes for 302,931 meters of explorations Vizsla Silver made between November 2019 and September 2023. Currently, the MRE consists of 88.2 million ounces of silver and 736,000 oz of gold, resulting in approximately 155.8 million ounces AgEq in indicated resources. The MRE also includes 93.7 million ounces of silver and 758,000 oz of gold, resulting in 169.6 million oz of AgEq in inferred resources. Follow-on exploration and development activities are also aimed at upgrading these resources and bringing them into the Measured and Upper Mineral Reserve categories, which have the highest confidence in terms of project viability. The previous analysis also provides a comparison between Panuco's current resources and those of potential competitors, surpassing Aya Gold & Silver Inc. (OTCQX:AYASF) (AYA:CA) in terms of metal grade, and topping SilverCrest Metals Inc. (SILV) (SIL:CA), and MAG Silver Corp. (MAG) (MAG:CA) in terms of contained ounces. The following aspects also contribute to reducing the investment risk of the project at Panuco: These are the moderate rate of risk, as shown by the Sprott ESG Mining Risk Heat Map 2024 and the existence of all major infrastructure nearby that will provide future production with the necessary utilities and connection to sales markets. Source: Vizsla Silver Corp. - Company Presentation To date, Vizsla Silver has completed over 380,000 meters of drilling at the Panuco silver-gold project located near the city of Mazatlán within 17,856.5 hectares of the former producing district and has discovered several new high-grade veins as represented in the map below. Source: Vizsla Silver Corp. - Company Presentation Vizsla Silver has already planned approximately 45,000 meters of drilling in 2024 to develop and expand mineral resources and conduct further testing, since the company believes the district hosts many more high-priority mineral targets. The latter is because the team has improved its geological understanding of the district. The team believes that in addition to the already known high-grade area in the southwest corner of the district centred on the Napoleon discovery, there is potential for similar resources in the central to eastern part of the district. The company plans to complete approximately 10,000 of the 45,000 metres of new exploration drilling in the central to eastern part of the district, which it believes contains promising targets. In this regard, Vizsla Silver has done itself a great favour by including the La Garra-Metates district in the heart of the Panuco gold-silver district, as highlighted and detailed in the previous article. The La Garra-Metates district is said to be similar to Copala and the Napoleon vein and is located just 32 km from First Majestic Silver Corp.'s (AG) (AG:CA) largest silver equivalent ounce (\"AgEq\") mine at San Dimas: more than 45% of First Majestic Silver's total silver production. Exploration activities further enhance the understanding of the property's mineralization to expand and upgrade resources and further reduce project risk. Since the last article, drilling has continued to confirm high-grade continuity throughout the Copala deposit and near-surface. The exceptional mineral continuity is where mining will initially occur, increasing confidence that the entire Panuco mine will be a high-margin mine, enabling a rapid recovery of the initial investment. As the first two years of production will occur at Copala, the expanded infill drilling program is focused on making progress on resources there: expanding the indicated resources but also upgrading the inferred resources, leading to an interesting update of mineral resources scheduled for late Q4 2024. This will provide the stock price with an upside potential if resources improve from the current estimate. The Stock Price: Due to cyclicality, a Low Level to Exploit Is Possible As of this writing, shares of Vizsla Silver Corp. under the symbol VZLA on the NYSE were trading at $1.91/share for a market cap of $527.26 million and a 52-week range of $0.96 to $2.21. Source: Seeking Alpha The stock is not trading sufficiently low, as it is only slightly below the MA Ribbon and much closer to the higher boundary than the lower boundary of the 52-week range. Source: Trading View The 14-day relative strength indicator of 47.30 suggests that shares are neither overbought nor oversold, but have a lot of margin underneath to test lower share price levels. This stock has incredible growth prospects that will become increasingly robust as exploration activities progress. However, since cyclicality can provide opportunities to add shares from lower levels, investors may want to target these lower levels or healthy declines in share price while holding their investment. The stock has a market beta of 1.40, meaning it reacts more proportionally to changes in market sentiment. If there is another market panic, as happened recently in early August, Vizsla Silver shares could quickly fall and experience a dip. Normally, lower interest rates drive gold and silver prices higher, which should lead to higher Vizsla Silver shares as well. But if the Fed's 50 basis points rate jumbo cut is taken as a signal that the US economy is in recession, Vizsla shares may initially be caught up in pessimistic sentiment among US-listed stocks. Conclusion  Vizsla Silver is building a strong growth future in Sinaloa, Mexico in the metal-rich and highly prospective Panuco mining district, where the company has already identified several high-grade metal deposits in the southwestern part of the district. The company is now increasing mineralization continuity and aims to enhance and develop mineral resources on the Copala deposit, where mining will begin and produce equivalent gold in the first two years of production. The company has already started exploring the central south-eastern part of the district and believes that the mineralization is also very good there. A PEA is already in place for the Panuco project, which results in robust financial metrics for IRR, payback and NPV based on conservative metal price assumptions. The team has strengthened its mineral understanding in the district, and further activity now has the potential to significantly upgrade and expand the resource, creating upside opportunities for the share price. This stock should be in the portfolio of investors in precious metals exploration companies due to Panuco's promising future, while it is on track to improve its market cap on the NYSE amid bullish sentiment in gold and silver. Stock prices rise in cycles, which could provide a short-term opportunity to boost holdings after the Fed's rate cut last September 18. If the jumbo rate cut is interpreted as the US economy slowing down too much, the markets could panic again, as they did in early August, and could drag shares of Vizsla Silver down for a while.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469498076"}