Sierra Madre TSXV:SM is a gold and silver miner with a very substantial property in Mexico that seems well positioned to benefit from the rising prices of precious metals. The company’s La Guitarra mine is already up and running with over 20,000 tonnes processed as of 31 August.
La Guitarra is a high grade, underground mine that operated up to August 2018. It is both functional and expandable and comes with a crushing and floatation facility which can process up to 500 tons per day. But beyond this, even as the existing mine is providing Sierra Madre with revenues, there is massive exploration potential on site, with more than 59 untested structures.
La Guitarra’s 2023 resource update was for 27.2m silver equivalent M&I ounces, with 20.2m inferred ounces. This is a massive upgrade to previous estimates. It was Sierra Madre’s first project-wide resource estimate for La Guitarra and incorporated historic data from the site.
Investors should also be aware that La Guitarra has a considerable inferred resources estimate thanks to the presence of tailings on the site from historic mining activity. These have helped to reinforce the commercial viability of the project.
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Low cost re-start strategy
La Guitarra has all the ingredients of a low risk, low cost re-start strategy. It has a high grade underground mine that is now advancing to full re-start status, plus permits in place covering mining and processing activities. Sierra Madre also has water use permissions and environmental impact authorisation in place, plus exploration permits for several other mines on the property.
Test mining and processing of mineralised rock from La Guitarra mine started in July. Management reckon the company will hit 500 tpd before year end. This is also allowing the team to evaluate the recovery of gold and silver from tailings. Sierra Madre says it is currently actively reviewing avenues to increase the current plant activity.
We should also mention that the district was acquired from First Majestic Silver TSX:FR in an all share transaction for USD 35mn. First Majestic is now the largest shareholder (44.9%) in Sierra Madre. The smaller miner was also able to complete a concurrent CAD 10mn private placement.
First Majestic remains very committed to the ongoing fortunes of Sierra Madre – unusually for the mining sector it provided Sierra Madre with a USD 5mn loan (non-revolving, secured term) for completing the facilities, equipment and infrastructure at La Guitarra. This has allowed Sierra Madre to get the mine up and running and making money quickly.
Why we like Sierra Madre
Sierra Madre is not a high risk punt looking for a new mine – it has an existing and potentially very fruitful historic mine which can already make money. It shipped its first batch of silver-gold concentrate from La Guitarra this year, sent to MTI Trading under the terms of a 24 month contract. Management expects around 350 DMT of silver-gold concentrate production per month by year end, which sets the miner up with a nice ongoing revenue stream.
Sierra Madre also has some potentially very interesting further exploration opportunities at La Guitarra. There is bulk mining mineralisation in previously defined open pit deposits which can be accessed by underground methods. Sierra Madre can also develop alternative underground mining methods not previously used on this site.
We were impressed when we met with management at the size of the district-wide opportunity for Sierra Madre: district-scale geologic mapping has delineated 59km of mineralized quartz veins and breccias. On site there is data from more than 1400 drill holes with 236,000 completed to date. That’s a lot of exploration activity the company won’t need to pay for.
Sierra Madre also has over 100 epithermal veins in five main systems it can explore, and a 4km wide vein belt that spans 15km of strike. Investors should keep tabs on the exploration results that come out of this district going forwards.
