Silver Stock Report
by Jason Hommel, Feb 10, 2006
Avino is one of the most highly leveraged silver stocks out there. The Avino is a recently producing mine in Mexico, now 100% owned by Avino Silver. The existing infrastructure means less capital will need to be raised, which means less share issuing and dilution, and less time to begin producing.
ASM.V ASGMF.OB (AVINO SILV GOLD) (I own shares.)
firstname.lastname@example.org 604 682-3701 -- David Wolfin
13.4 mil shares fully diluted (Jan 31, 2005)
16.4 mil shares fully diluted (including "up to 3 mil shares?", after the purchase of remaining 51% of the Avino mine--final share count still being finalized?)
@ $2.24/share Cdn x .87 US/Cdn = $1.95 US
= $32 million Market Cap
Cash on hand: $2 million Cdn (Aug. 2005)
"How Much Silver Does Avino Have?"
An old newsletter writer reported an estimate: "Operations at Avino's silver mine in Mexico are both open-pit and underground. I examined the reserves and interpolated the tonnage into silver ounces as follows: 28-million ounces proven; 50-million ounces probable and 27 million ounces possible." (Not all are 43-101 compliant reserves & resources.--that is an old, third party report.)
The Avino Mine operated from 1986 to 2001, producing about 497 tons of silver, 3 tons of gold, and 11,000 tons of copper.
Historical silver production was about 1.6 million ounces of silver per year.
Avino produced 166 ounces of silver for every one ounce of gold. At a 60:1 value ratio, that means that the value of silver to gold is 2.76 times as much value (today and historical) is in silver than gold.
They actually have over five silver properties/projects. I only have numbers for one, the primary Avino mine.
= 28 + 50 + 27 = 105 million oz. silver.
$32 million Market Cap / 105 mil oz. = $.30/oz.
You get "approximately" 30.7 ounces in the ground for 1 oz. silver's worth of stock.
In the last bull run in silver, up to $8/oz., to April 2004, on Jan, 2004, Avino was trading at a higher value about 18 oz. of silver in the ground for one oz. of silver's worth of stock. See http://www.silverstockreport.com/reports/silverstockreport17.htm. Avino's share price was $2.20, when silver was $6.46 and headed up. Therefore, Avino is relatively cheap, today, now that silver is $9.33, and headed towards $10/oz.
Producers are often valued much higher, with a stock price at high multiples of the leverage in the ground, typically around 5:1, and not like 30:1 as Avino is valued today. Thus, Avino stock could rise about 6 times faster than silver from here, as Avino drills to prove up the silver reserves and resources, returns to production, and as the silver bull market continues.
Another way to put a value on the company is via expected P/E ratio. The Avino was a marginally profitable mine at $5/oz., and had to be shut due to low silver prices. Assuming they can produce at a profit with higher silver prices, perhaps the Avino can make $2-3/oz per ounce of silver mined at about $10/oz. If they go back into production to produce 1.6 million ounces of silver per year, that may be about $3-5 million in profit. This gives a much more conservative valuation estimate, but it could help move the market cap up to $50 million or more (as silver producers are more higly valued.) Further, as is typically the case when Americans take control of the Mexican silver mines, usually there is increased investment in exploration, and increased production capacity. So, perhaps such profits could double with a rather modest increased investment. Plus, there is increased leverage, of course, as silver prices rise.
On Oct 18, 2005, Avino Receives Exchange Approval for Purchase of Mexican Company.
The clear bonus with Avino is that they have a formerly working mine, with existing infrastructure. Many of the other exploration companies don't have that. That means less dilution, and it means you know this is a real, viable project.
The Avino plan is to first mine the tailings, which are rather high grade, and may contain up to $30 million dollars of gold and silver that can be processed rather quickly in a few years. They also plan to drill and prove up resources in the ground, and upgrade the mine, to increase production beyond historical levels. It's the classic "upgrade-the-Mexican-silver-mine" investment story that is taking place with Genco, Endeavour, First Majestic, Capstone, and many others.
The best part about Avino is the fact that management is very bullish on the outlook for silver prices, which appears to me that there is little risk of them doing foolish things like trying to hedge or pre-sell and lock in a price for silver in a rising market.
Before you make any investment in any small silver company that clearly needs to raise capital, especially if you are a large investor, please contact the company directly before excessively bidding up the stock on the open market.