Silver Standard Resources Inc. (SSRI, Financial) (TSX:SSO, Financial) informed the stock markets that a joint venture for the development of Chinchillas project is going to be created with Golden Arrow Resources Corp. (TSXV:GRG, Financial).
According to the terms of the deal, Silver Standard Resources will contribute to the creation of the new business entity with its Pirquitas property and Golden Arrow Resources with its Chinchillas property.
Silver Standard Resources will hold a 75% stake in the joint venture and Golden Arrow a 25% stake. The joint venture will be operated by Silver Standard Resources.
Golden Arrow has published a pre-feasibility study about the Chinchillas project on its website and the National Instrument 43-101 will be available by mid-June 2017.
Chinchillas is located in the Argentinian province of Jujuy, not so far from the the Pirquitas mine. The near-surface mineralization provides Chinchillas with the potential to build an open pit mineral deposit; the site is characterized by favorable silver, zinc and lead recoveries. The processing of ore can be undertaken using the existing machinery available at Pirquitas.
According to the pre-feasibility study at Chinchillas, the annual production of silver equivalent is estimated to be approximately 8.4 million ounces. The mine life is eight years, and the quantity of ore milled per day is 4,000 tonnes.
The financial analysis of the pre-feasibility study estimates an aftertax NPV (5%) of $178 million on the base of a price of silver of $19.50 per ounce, a price of lead of 95 cents per pound and a price of zinc of $1.00 per pound. The internal rate of return of the project is 29%, and the project is seen to produce strong operating margins over its entire life of mine at a cash cost per ounce of silver sold of $7.40. The construction is expected by Silver Standard Resources to start sometime in the third quarter of this year, and the mineral will start to be delivered to the Pirquitas mill some time in the second half of 2018.
Golden Arrow expects that the project will require a low amount of capital to be invested for the development of Chinchillas of approximately $81 million.
At Chinchillas, mineral reserves are estimated to be approximately 11.7 million tonnes which contain approximately 58 million ounces of silver grading 154 grams per tonne, approximately 310 million pounds of lead grading 1.20% plus approximately 127 million pounds of zinc grading 0.49%.
Paul Benson, Silver Standard’s president and CEO, said, "Forming the joint venture is an excellent result due to the outstanding cooperation by our partner Golden Arrow, the Argentine government and many within Silver Standard. We believe Chinchillas will extend the life of our Pirquitas operation well into next decade and it enables the joint venture to evaluate the viability of an underground operation at Pirquitas."
Benson added, "The successful development of Chinchillas will be a great outcome for Argentina and the Province of Jujuy with the creation of jobs, the payment of royalties and taxes and significant export revenue. We look forward to working closely with the local communities and government as we invest in the development of Chinchillas to extend the operating life at Pirquitas, which supports Silver Standard as an intermediate precious metals producer with growth and value."
Silver Standard Resources is trading at $10.61 per share versus an analysts’ average target price of $13.05 with a price-sales (P/S) ratio of 2.63 and a price-book (P/B) ratio of 1.40. The Enterprise Value/EBITDA ratio is 5.17.
Golden Arrow Resources is trading at 86 cents (Canadian dollars) on the TSX Venture Exchange. The stock has 97.22 million shares outstanding and a market capitalization of $83.61 million.
Disclosure: I have no positions in any stock mentioned in this article.
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