VZLA - Vizsla Silver: Another Impressive Resource Update On Panuco
2024-01-11 16:54:38 ET
Summary
- Vizsla Silver is a precious metals development company listed in the U.S. and Canada.
- The company owns the Panuco project in Mexico, which contains high-grade silver and gold zones.
- The recent resource update on Panuco showed a 49% increase in indicated resources and a 17% improvement in grade.
Overview
Vizsla Silver ( VZLA ) is a precious metals exploration & development company which is listed in the U.S. and Canada ( VZLA:CA ). The company's fiscal year ends in April and the reporting currency is Canadian Dollars. Vizsla Silver owns the highly prospective Panuco project in Mexico, which has shown to contain some very high-grade silver and gold zones.
I last covered Vizsla Silver during the summer of 2023 and that article can be found here . Since my last update, t he company has continued to deliver strong drill results and earlier this week released a resource update which showed a very strong growth in total resources.
The stock price of Vizsla Silver has done relatively well over the last year, if we compare it with the regular silver mining ETFs, and some silver mining companies in the region. The stock has had a positive 9% return, while many peers have declined substantially.
Figure 1 - Source: Koyfin
Resource Update
The resource update is based on 178 new infill/expansion holes totaling about 100Km, from September 2022 to September 2023. The update on Panuco showed a 49% increase in indicated resources from 104.8 to 155.8 Moz silver equivalent ("AgEq"). The inferred resource grew by 49% as well, to 169.6 Moz AgEq. Not only did we see resources grow substantially, but the indicated resource grade also improved 17% from an already impressive 437 g/t AgEq to 511 g/t AgEq.
The recent update showed resource growth in several areas of the project, but the Copala area continues to be the core of the project, with almost 2/3 of total indicated resources and slightly better grades than the other areas.
Figure 2 - Source: Vizsla Silver January 2024 Presentation
Given the current size and grade of the project, I agree with the company that MAG Silver's ( MAG ) Jauanicipio and SilverCrest's ( SILV ) Las Chispas projects are comparable to Panuco. However, I would point out that there are several known open-pit projects in the figure below, where the grades are naturally not directly comparable.
Figure 3 - Source: Vizsla Silver January 2024 Presentation
Valuation
Vizsla Silver does presently have a fully diluted market cap of $317M. There is no debt, and the cash position is at $26M, so the enterprise value is consequently just below $300M even if we can expect that cash to be used over the coming year.
The company has so far not completed any economic studies of Panuco, but a preliminary economic assessment ("PEA") is due at the end of 2024.
Based on the current indicated resources together with the grade, I would very roughly estimate the net present value ("NPV") of Panuco to be somewhere in the $700M to $1B range. That figure will naturally depend on the metal price assumptions and discount rates we rely on. The NPV also has the potential to grow if the company continues to be successful with future exploration.
So, with a market cap of $317M, we are talking about a market cap to NPV in the 0.32-0.45 range.
Conclusion
A market cap to NPV around 0.32-0.45 is not that expensive for a project that has an impressive grade and size. With that said, it is important to remember that it is a relatively early-stage project, which would be at least 4-5 years from production at this stage.
The share count has grown by 128% over the last three years and while I don't expect the same level of dilution going forward, I would be very surprised if the share count didn't grow by at least 50% to get Panuco to production. That is something that should be considered with an investment in Vizsla Silver today.
Figure 4 - Source: Koyfin
I think Vizsla Silver has the potential to do well going forward, but the company is to some extent dependent on higher metal prices and/or more exploration success. Given how successful the company has been with the drilling over the years, further resource growth might be quite likely.
Even though Vizsla Silver is a very impressive company, I remain more neutral on the stock. I prefer later stage developers or producers, which are more de-risked, where several of those stocks have been punished significantly over the last year.
For further details see:
Vizsla Silver: Another Impressive Resource Update On Panuco