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Silver Standard Is Evolving From A Pure Play Silver Company Into A Much Broader Precious Metals Story

June 22, 2009

By Rob Davies

A resource base of over 1,700 million ounces of silver has a gross in-situ valuation of US$25,000 million. That is what Silver Standard has to its name, and the market correspondingly values the company at US$1,400 million, or 82 cents an ounce. As a way of playing silver there can surely be few better or cheaper ways. But it gets better than that because the company is rapidly adding lots of gold to its resource base as well – gold from the Snowfield property in British Columbia. At the last count this property had four million ounces in indicated resource and another 14 million in the inferred category. In gross value that is another US$17,000 million. Combine the two resources and ownership of Silver Standard gives a claim to over US$42,000 million worth of precious metals up and down the Americas.

At this stage it is only fair to point out that only 195 million of those silver ounces are in the proven and probable categories, and that none of these ounces will be extracted and sold for some months yet. Worse, the bulk of those silver ounces are in Argentina, a country that has had a rather capricious attitude to capitalism in recent years. Minesite put that observation to Robert Quartermain, president and chief executive officer. He was unfazed, and replied that the important level of administration is at the state. His most advanced project is in the state of Jujuy which is mining-friendly. He made the point that anyone seeking to develop a mine in the USA would get a very different reception in New Hampshire than in Nevada. He has nothing but praise for the cooperation he and the company has received from the local administration.

After all, he points out, the state has a mining history going back 100 years. Construction of the company’s Pirquitas mine is well on track to allow first production at the end of this year, with the aim of selling 10 million ounces of silver in 2010. Close proximity to a gas pipeline will help minimise production costs, although there has been some escalation in capital costs to US$230 million. On the positive side there is no hedging in place so there is no cap to revenue. The last negotiation left is to agree terms with smelters to take the silver and the tin concentrates. Tin will account for about 20 per cent of revenues, so will be a key component. The original plans called for a zinc circuit that would have been worth about five per cent of total revenues. But with zinc prices as weak as they are that element has been deferred and the emphasis has been transferred to maximising silver recoveries.

But even though production is imminent from Pirquitas it would be wrong to overlook the company’s Pitarilla property in Mexico. This deposit has 644 million ounces of silver in total resource and is at the pre-feasibility stage. Also not to be ignored is the San Luis property in Peru. where a feasibility study is underway. More topical, though, is news from the Diablillos project in the Salta Province of Argentina. Recent drilling has just delivered a much better quality resource that now stands at 77 million ounces of indicated and six million inferred ounces of silver. Here Mr Quatermain feels there is now a compelling case to go to pre-feasibility study.

But ultimately, it could well be Snowfield that really changes perceptions about the company. It is located on the same geological structure as the Mitchell Zone owned by Seabridge. At 150 million ounces this resource is one of the largest known undeveloped gold resources. While Snowfield only has 10 per cent of that now, Mr Quartermain is clearly optimistic that that could change. A drilling programme there this year should give him plenty to talk about when he comes to Europe in the autumn.

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