SLV - Vizsla Silver: Where Risk Meets Reward In The Mining Industry

Summary

• Vizsla Silver Corp. is a silver development company with great risk but also tremendous upside potential.
• The company has completed 140,000 meters of drilling and reported sensational results such as 2,640 g/t silver equivalent over 5.30 meters.
• Vizsla has two major catalysts ahead in 2023, which could help propel the stock higher.
• I break down the investment case for Vizsla Silver in 2023.

Taking a Chance on Vizsla Silver: Why the Risk May be Worth it

Vizsla Silver Corp. ( VZLA ) is a silver development company focused on advancing its 100%-owned Panuco Silver-Gold project in Mexico. Vizsla's team of mining industry professionals has completed more than 140,000 meters of drilling on the project, resulting in excellent exploration success with the discovery of several new high-grade veins.

Vizsla has wisely consolidated 100% ownership of this district. This is a past-producing district that has excellent infrastructure, including power, water, and road access.

While 2022 was a very active year with more than 120,000 meters of drilling, 2023 is set to be an even more exciting year as it follows up on its recent drill success reported on Dec. 14, when it reported an ultra-high grade vein of 2,640 g/t silver equivalent over 5.30 meters.

While Vizsla's 100+ million ounce silver resource is impressive, it appears the company has just scratched the surface of Panuco's upside potential, given that the resource estimate only covers 5% of the known vein strike on the property.

Here's a full review of Vizsla Silver Corp., including its upside potential and the key risks and uncertainties to watch out for.

Vizsla Silver: Multiple Catalysts Ahead

Vizsla Silver enters 2023 in an enviable position in the silver industry, with several key catalysts ahead.

The company has a 107 million ounce silver equivalent resource at Panuco, which features an impressive size and grade of 366 g/t AgEq - this is comparable to some of the producing mines near the deposit, like SilverCrest's ( SILV ) Las Chispas and First Majestic's San Dimas mine, although it currently has lower grades.

However, Vizsla is slated to report an updated project resource shortly. The updated resource will incorporate all of the 200,000+ meters of drilling completed by the company to date. That includes some spectacular drill holes that are sure to increase the size and grade of the deposit, such as the following bonanza-grade silver results released in 2022:

• 2,640 g/t AgEq over 5.30 meters (Dec. 14);

• 2,093 g/t AgEq over 10.20 meters (Sept. 12);

• 1,011 g/t AgEq over 12.52 meters (Aug. 10);

• 1,030 g/t AgEq over 20.45 meters (June 21).

The image below shows the Copala structure's biggest drill holes to date. Copala makes up one-fourth of the resource at Panuco.

Next, I expect Vizsla to follow up the resource estimate with a positive preliminary economic assessment. A PEA study is completed by a consulting or engineering company to assess the economic potential of a mining project and to see if it's worth an investment. While a PEA study is an early-stage study, it should give investors a good level of confidence in Panuco's upside potential and help Vizsla secure and guide further investments.

These two catalysts, and the continued advancement of development activities at Panuco, should lead to a re-rating of its stock in 2023.

Finally, Vizsla also made an interesting move recently when it announced it will invest C$2 million in Prismo Metals , which gives it the right to purchase the Palos Verdes project. This project sits in the eastern area of Vizsla's Panuco district and covers 700 meters of strike length of the Palos Verdes vein. Recent drilling has intercepted a wide vein structure, and past drilling has returned promising results, including 2,336 g/t Ag and 8.42 g/t Au over a true width estimated at 0.8 meters. This gives Vizsla another high-priority drill target in 2023.

Vizsla Silver: Understanding the Stock's Valuation

That leads us to Vizsla's valuation. Is the stock cheap or not?

Considering the lack of proven silver reserves or production, it is fairly difficult to place a fair value on Vizsla Silver.

After closing an equity financing on November 15, 2022, the junior silver developer is well funded with US$30 million in the bank, and as of writing on January 10, has a market cap of US$210 million, with an enterprise value of approximately $180 million.

Should Vizsla be worth more than that or is it fairly valued?

Vizsla currently has 107 million ounces of silver resources, valuing the company at $1.68 per silver ounce. But I expect that the resource will grow by at least 20% in the next update due to their 2022 drilling success.

Additionally, the potential for 8+ million ounces of silver production per year is expected to be outlined in the PEA study, with a net present value likely to exceed Vizsla's enterprise value. I'm also expecting the company's upfront capex requirements to come in low compared to other silver projects of its size, given Vizsla's access to existing infrastructure. It would be a positive sign to see upfront capex come in under $200 million.

Using SilverCrest's nearby Las Chipas project as an example - which has a feasibility-study value of close to $500 million based on a $19/oz silver price and upfront capex of $137 million, with estimated all-in costs of $7 per silver ounce produced - I think Panuco may post similar, if not slightly less rosy, figures.

However, Vizsla is still very much an exploration success story, and its current resource only covers 5% of the known vein strike on its property, so I expect the resource to grow from here. Vizsla's upside potential is ultimately several multiples of its current value based on this potential.

If you don't feel comfortable investing in Vizsla because of a lack of a proper valuation, it's best to wait for its updated resource and PEA study first. Those updates should give investors much more information to make a more informed decision. (However, it's also possible Vizsla puts out positive reports, and its share price jumps, too, so keep this possibility in mind.)

Vizsla Silver: Risks to Consider

Vizsla Silver is a high-risk stock for several reasons, but mainly, due to the fact that it's a silver developer with no cash flow from operations.

I read through Vizsla's annual report and other company documents to dig through its biggest risk factors. Here's what I think are the biggest risks to consider.

Silver price risk: Vizsla Silver faces a major threat if silver prices decline from here. This could be the result of a brutal economic recession in the United States, as it would reduce the demand for silver, which is used for industrial purposes. If the price of silver drops, this would be detrimental to Vizsla's PEA study valuation and make it more difficult to obtain additional funds in the future. It could even endanger the entire project. However, if you are investing in a silver developer such as Vizsla Silver, it is likely that you are already aware of this risk.

Construction risks: Building a mine is a risky business. Vizsla Silver has not established any silver mines yet, and both the costs and the time it takes to build and finance a mining project can be substantial. Furthermore, the cost of constructing the mine may be higher than expected due to inflation. Finally, there's no guarantee that Vizsla Silver will be able to secure the funding to construct the mine, which could lead to a delay or even prevent the development of the mine.

Liquidity risks: This risk is the potential inability of the company to pay its financial obligations when they become due. Remember, Vizsla is a developer and has no cash flow from operations yet. It's likely several years away from producing any metals. To prevent its liquidity risks, the company says that it has a budgeting and planning process to determine the necessary funds to support its everyday operations and exploration plans.

Political risks: Vizsla is a Canadian-based company with operations in Mexico. While Mexico rates as a favorable mining jurisdiction, Vizsla Silver's operations in Mexico may be affected by future political instability and changes in government regulations, including tax laws, business laws, environmental laws, and mining laws. Such potential changes are beyond its control and could make it hard (if not impossible) to operate in certain countries. Also note that governments can impose restrictions on its production, implement export controls, income taxes, and environmental legislation.

Environmental regulations: Vizsla (along with other silver developers) is subject to environmental regulations that are set by government agencies in different countries. These regulations involve restrictions and prohibitions on spills, emissions, discharges into water, management of hazardous substances, protection of natural resources, and reclamation of land affected by mining. Environmental assessments are also required for certain activities and adherence is necessary to avoid fines and penalties.

Vizsla Silver: The Bottom Line

In conclusion, Vizsla Silver is a silver development company with great risk, but also tremendous upside potential, and I believe its shares will outperform silver mining peers ( SIL ). The company has completed 140,000 meters of drilling and reported sensational results such as 2,640 g/t silver equivalent over 5.30 meters.

With 107 million ounces of silver equivalent resource at the Panuco site, Vizsla is set to report an updated resource shortly, followed by a preliminary economic assessment study. 2023 is a promising year for Vizsla, as it's projected to increase the size and grade of the resource while they also announced a $2 million investment in the Palos Verdes project, which may further grow the deposit.

At this point, it is difficult to place a fair value on Vizsla Silver Corp., however, considering past drill findings and Las Chispas' feasibility study, there is potential for the net present value of Panuco to exceed the company's enterprise value. Potential risks to consider include silver price risks, construction risks, liquidity risks, political risks, and environmental regulations.

The bottom line: Vizsla Silver Corp. could be a good investment for silver bulls looking to take on higher risk to get greater rewards.

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