Vizsla Silver: An Outstanding Silver Project

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Vizsla Silver Corp.'s Panuco project boasts high-grade silver resources with significant exploration potential, aiming for 20M oz in annual production and $1B in annual FCF at $70 silver.The project ...

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Bet_Noire Introduction Vizsla Silver Corp. (NYSE:VZLA) has one of the best silver development projects (Panuco) in the world. It's already 325M oz AGEQ (including gold) at 400 gpt, and growing is size. Panuco has several drills turning, and only 43 targets out of 158 have been drilled. They already have 7 discoveries that they are drilling, and this is all surface drilling. With these high grades, it's likely open at depth. Large high-grade silver mines have become extremely rare. This project is a thing of beauty. What gets me excited is the long-term potential FCF (free cash flow) that this mine could eventually provide at higher silver prices. They have a PEA to produce 20M oz AGEQ the first two years, and then 15M oz AGEQ years 3-7. I think there is a good chance they will be able to maintain that 20M oz annual production or exceed it. If they produce 20M oz AGEQ annually and the break-even costs per oz are $20 (the projected AISC is $9.50), then that could be 20M oz x $50 (at $70 silver) = $1B in annual FCF. With a multiple of 10x, you get a valuation of $10B. It’s currently valued at $613M. With development projects, I look for projects that check all the boxes I prefer. Let’s do a checklist. Large Resources: Yes. Large resources with a long-life mine. Economic: Yes. The PEA has a high IRR at low silver prices. The capex is very low ($225M) for the amount of AGEQ they will produce. The payback is less than 1 year. High upside potential: Yes. I prefer at least a 10-bagger (at higher AG/AU prices) for development projects. Good Management: A question mark. They claim they can take it to production and are fast-tracking the project. Good Location: Yes. It's a past-producing mine in a good area with excellent infrastructure. Permitting should not be an issue, although that is an assumption. A Good Plan: Yes. They are providing guidance of completing a feasibility in H2 2025, with a target of production in 2027. I’m satisfied with their plan. A Path to Production: Yes. It’s not permitted yet, but I think they have a path to production in late 2027 or 20208. Share Dilution: This could be a red flag. Big mines are expensive to build and develop. However, the capex is projected to only be around $225M, and they currently have about $100M in the bank. Exploration Potential: Excellent. This mine will grow. A Pipeline: A question mark. However, with their exploration potential, I would consider that a strong pipeline for growth. Insiders: My estimate is around 25% (management/board own 15%). I do not expect them to sell before the first pour, but it is possible. While it checks all the boxes that I look for, development projects tend to break your heart because so much can go wrong. The biggest risk is that they will sell before the first pour, which nearly always happens with projects of this quality. They probably have enough insiders to prevent a hostile takeover, but if the board accepts a friendly takeover, those nearly always succeed. The other significant risks are share dilution to advance the project to production, as well as potential permit issues, and potential higher taxes and royalties in Mexico. Another risk is partial nationalization, which I think could happen in the future. This would entail Mexico requiring companies to give them partial ownership of mines. Hopefully, that never happens. One thing I always like to point out is that investing in PM miners is speculating. We are gambling since so many things can go wrong. Keep your allocations low and expect to lose money on some of your PM mining stocks. What we are really betting on is PM prices going higher. If silver prices rise, then Vizsla will be in a strong position. If silver prices languish, then bad things could happen.   Stock Name Symbol (US) Type Category Share Price (US) FD Shares FD Mkt Cap (10/10/2024)   Vizsla Silver VZLA Silver Late-Stage Development $2.01 304M $613M   Click to enlarge Company Overview Vizsla Resources was formed in 2019. They purchased a large property (Panuco) in Mexico for $43 million in cash and shares. This was one of the best purchases ever made for a silver property. Panuco is already 325M oz at 400 gpt AGEQ (including gold) and growing. In 2024, they had their largest discovery hole of 4M at 8800 gpt AGEQ, including 1694 gpt AG and 103 gpt AU at Copala. That is a gram-meter of 35,000. They have only explored 43 out of 158 targets (20 known veins). They have 6 drills turning, which burns through cash, but they have $100M and no debt. Furthermore, they have about 70 miles of known veins. Currently, they are drilling about 5 veins in three different corridors: Napoleon (8 meters at 1800 gpt), Cordon Del Oro (3.2 meters at 1300 gpt), and Animas (3.6 meters at 1250 gpt). They released a PEA in 2024 with astonishing numbers. The capex is only $225M to produce 15M oz AGEQ at $9.50 AISC AGEQ. The NAV is $1.5B at $31 silver. And that is only 3,300 tpd. They expect to quickly expand that to 4,000 tpd, and it will likely grow much larger. They plan to complete a feasibility study in 2025 and then begin construction in 2026, with production in 2027. The company is now ready to build this mine as fast as they can. The location is ideal, with excellent infrastructure in a mining district near Mazatlan. My concern is, can they hold on to it? Insiders hold about 25%, with management holding 15%. They clearly don’t want to give it away. Projects of this quality tend to find their way to the whales (the majors). If they build it, this seems like a slam-dunk 5-bagger at higher silver prices. The comparable company to them is Gogold, with their Los Ricos property. I like Vizsla better. Gogold has to build two mines (LRS and LRN), whereas Vizsla only has to build one. Company Info Cash: $100 Million. Debt: (No long-term debt, but about $18 million owed for their option over 5 years). Current Silver Resources: 325 million oz (at 400 gpt AGEQ including gold). Estimated Future Silver Resources: 400 million oz. Estimated Future Silver Production: 20 million oz. Estimated Future Silver All-in Costs (breakeven): $20 per oz. Estimated Future FCF Multiple: 7 (decreased for possible share dilution to fund the capex). Scorecard (1 to 10) Properties/Projects: 9. Costs/Grade/Economics: 9 People/Management: 7.5. Cash/Debt: 8. Location Risk: 7. Risk-Reward: 8. Upside Potential: 8. Production Growth Potential/Exploration: 8.5. Overall Rating: 8.5. Strengths/Positives Tier one asset (large resource / high grade). Significant upside potential. Exploration potential. Strong insiders. Highly economic. Risks/Red Flags Likely share dilution. Dependence on higher PM prices for big returns. It could be acquired. Speculation stock (high risk). Estimated Future Valuation ($75 silver) Silver production estimate for the long term: 20 million oz. Silver All-In Costs (break-even): $20 per oz. 20M oz. x ($75 — $20) = $1.1 billion annual FCF (free cash flow). $1.1 billion x 7 (FCF multiplier) = $7.7 billion. Current FD market cap: $613 million. Upside potential: 1,100%. Future Valuation Explained This is an estimated return that will only occur if all assumptions are correct. A more likely outcome will be something less than this amount, although it is not crazy talk to expect silver to exceed $75 or the FCF multiple to reach a very high value. My All-In Costs are the expected costs that will generate FCF (free cash flow). I used a future FCF multiplier of 7, which I discounted to adjust for share dilution. They should receive at least a 15 multiple and quite likely 20 or higher at $75 silver with their huge FCF. I used a future PM price of $75 silver because I am a long-term investor who plans to wait for higher silver prices. I expect to see this level reached within 2–3 years. In fact, I use $100 silver for valuations on my website since that is my expected future price. I tone it down a bit to $75 on Seeking Alpha, which, I think, is more reasonable. In my opinion, gold drives the silver price, and macroeconomics drives the gold price. The only reason I expect to see $100 silver is that I expect to see at least $3,500 in gold. That would be a GSR (gold-silver ratio of 35). A $75 or $100 silver price may seem like pie-in-the-sky fantasy, but silver traded at $49 in 2011 when gold was at $1,935. That was a GSR of 39. It’s not a stretch to expect 35. Balance Sheet/Share Dilution They currently have a strong balance sheet with $100 million in cash and no long-term debt. However, large mines are expensive to build, and they will likely need to dilute shares significantly to pay for the capex. They do owe about $18 million over the next five years for 100% ownership, which will could cause some share dilution. But this is minimal based on their market cap. Risk/Reward As I mentioned at the beginning, investing in PM miners is speculating. Why? Because one of your assumptions is bound to get flipped. The biggest risk is that PM prices won't rise, or inflation will cause costs to rise significantly, reducing expected margins. Many things can go wrong and usually do. The reward for Vizsla is enticing if silver prices rise substantially, and they build the Panuco mine. We are buying silver in the ground for less than $2 per oz, and it could easily be worth many multiples of that value once the mine is built. Investment Thesis Development stocks are not my favorite place to invest since the risk-reward is never fantastic. The closer they get to construction reduces that risk, but even then, the risk is high. A project can be fully permitted and one year away from production and many things can still go wrong. You need the financing to be favorable to shareholders; you need construction to not have cost overruns; you need the ramp-up to hit your expected production and cost targets; and, you need the company to not sell the project. And these are just issues in the last year of development! Because development projects have such high risk, I only invest low allocations of around .5% of my total cost basis or less. I have never invested more than .5% in a development stock. And I make sure the upside is sufficient to take the high risk. Vizsla clearly has the upside to make this stock worthwhile. It is perhaps the best silver development project in the world besides Discovery Silver, which is my favorite project because of its massive resource size. But Vizsla’s resources could get much larger.  I see Vizsla as a potential slam dunk. Why? Because of its high insiders wanting to build the mine, its large resource size, and high FCF potential. Once silver gets above $35 and begins trending to $50, Vizsla's valuation is going to stand out. Yes, that payoff will be a few years away, but as long as silver prices remain elevated, eventually their silver will come out of the ground with a considerable profit. It could easily become a cash flow machine, and silver projects like this have become exceedingly rare.","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":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"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/2474090012"}