although sso stock has rallied more than 20% from its low, i believe it is even more undervalued now than it was a couple of weeks ago. the reason is the new estimate for pirquitas.

the mine life at pirquitas has been extended from 10 to 14.5 years and the extra four and a half years translates to almost 50 million oz. of additional production. it is difficult to place a value on that, and the company did not disclose any new net present value figures at the conference call.

so i have come up with my own back-of-envelope estimate. i will not attempt to predict the price of silver ten years in the future, nor the inflation rate between now and then. instead i will start with today's comex phony paper silver price of $18/oz. i make the assumption that silver will only appreciate at the inflation rate, which seems very conservative, but it makes the math much easier.

basically those 50 million oz. of silver will be sold at $18/oz. in today's dollars, so the future cash flows need not be discounted back to the present. not knowing what the government of argentina (or canada) will look like in fifteen years, i assume that taxes and royalties will take half of the revenue, and that other operating costs at pirquitas will be absorbed by base metal credits.

this leaves the company with profits of more than $400 million over the last 4.5 years (in 2008 dollars) so even fully diluted, that works out to at least $6-7 per share. the stock went up 1 that day, not 6, so the market is not giving the company credit for what it has accomplished at pirquitas. the stock has risen further in the past few days, but that was in line with the silver price and the other silver stocks; it was not specific to sso.