Off-Take Agreement Key Step for La Guitarra Restart

Sierra Madre Gold and Silver Ltd. (SM:TSX.V;  SMDRF:OTCQX) has announced the successful signing of a binding off-take agreement with MRI Trading AG, a Swiss-based global minerals trader. This agreement covers 100% of the concentrate sales from Sierra Madre's Guitarra silver-gold mine in Mexico for a duration of 24 months.

Alex Langer, President and CEO of Sierra Madre, expressed satisfaction with the deal, noting in the news release the extensive interest and multiple offers received for the Guitarra silver-gold concentrate.

"While we received extensive interest, including multiple offers from various parties for the Guitarra silver-gold concentrate, we ultimately chose to sign with MRI. MRI had previously received the concentrate from the time that the mine was last in production in 2018 and understands the high quality of the material. We are very pleased with the terms of this agreement, and the 24-month length is in line with the recently executed US$5 million loan facility with First Majestic Silver Corp. This off-take agreement is a key finishing step needed for a possible restart of La Guitarra," stated Langer.

A Glimmering Outlook for Gold and Silver

On July 10, a report on Kitco News highlighted that lower gold and silver prices through the summer had created strategic buying opportunities, setting the stage for a much longer bull run. David Brady, an independent analyst and author of The FIPEST Report on Substack, emphasized that this consolidation period was a short-term shallow correction in a broader uptrend. Brady projected gold prices to reach between US$2,700 and US$3,000 before a major correction, with long-term potential targets of US$5,000 to US$10,000 an ounce. He noted, "This is the start of a bubble in precious metals... This is going to go on for a decade or two, or maybe more, because confidence in fiat money is disappearing." Brady also remarked that gold and silver remained the only solid store of value in a world drowning in debt.

Market Analyst Fawad Razaqzada maintained a positive outlook in a July 8 report on Forex, predicting significant upside potential for gold and silver despite a weaker start to the week. Razaqzada pointed out that silver's impressive gains were due to a breakout from a technical continuation pattern and the dollar's decline against foreign currencies. He added that after testing a major support area, silver buyers had stepped in, pushing prices above several short-term resistance levels. 

Technical Analyst Clive Maund said, "All of the pieces are now in place after long preparation for Sierra Madre Gold and Silver Ltd. to become a highly productive and profitable precious metals mining company." 

"Looking at the long-term chart, silver might be on the verge of a significant move," Razaqzada stated, suggesting that silver could rise toward US$35.00 in the coming weeks.

Richard Mills, writing on July 12 for Ahead of the Herd, reflected on the first half of 2024, noting that their prediction of a "perfect storm of higher prices" for commodities had been accurate. Mills reported that gold reached US$2,393/oz following the release of U.S. NonFarm Payrolls Data.

Scott Anderson, Chief US Economist at BMO Capital Markets, cited evidence of labor market cooling and a rise in the unemployment rate, which could give policymakers confidence that consumer inflation would soon return to the 2.0 percent target. FX Street also noted that the prospect of lower interest rates was a bullish signal for gold, supported by geopolitical and macro factors.

On July 11, FXStreet reported that gold prices rose after U.S. Consumer Price Index (CPI) data for June indicated cooling inflation, increasing the likelihood of a rate cut in September. Joaquin Monfort from FXStreet noted that lower interest rates would make gold a more attractive investment by reducing the opportunity cost of holding the non-interest-bearing asset. Gold benefited from further gains after Fed Chairman Jerome Powell's cautiously optimistic testimony to lawmakers, suggesting that the U.S. economy was no longer overheated and that inflation had been improving. Monfort also reported that central banks around the world continued to hoard gold, contributing to its rising prices.

Strategic Milestones For Sierra Madre

The binding off-take agreement with MRI Trading AG marks a significant milestone for Sierra Madre, positioning the company favorably for the potential restart of the La Guitarra mine. The agreement aligns with the terms of a recently secured US$5 million loan facility from First Majestic Silver Corp.

In the company news release, CEO Alex Langer highlighted the importance of the agreement, emphasizing MRI's familiarity with the high-quality material from the Guitarra mine due to their previous involvement when the mine was last operational in 2018. The decision to partner with MRI, amid multiple competitive offers, underscores the company's commitment to securing favorable terms and ensuring a reliable pathway for future operations.

This off-take agreement sets a clear trajectory towards the potential restart of the La Guitarra mine, contributing positively to the company's strategy.

Expert Insights

According to the May 29 VSA Morning Miner, Sierra Madre received approval for modifications to its operational permits for La Guitarra, confirming the company's ability to progress a low capex route to production.

The VSA Morning Miner noted, "The company recently received a US$5 million loan from its major shareholder First Majestic, supporting the transition to a modern dry stack and paste backfill approach." This interim period, using the original tailings technique ensured that initial production would not be hindered by tailings capacity, providing time to finalize the design and build a new, more modern system. The report highlighted that paste backfill is becoming increasingly common at underground mines, increasing underground stability and reducing the surface footprint of mine waste.

Beacon Securities analyst Bereket Berhe, in a research report published on May 30, wrote that Sierra Madre Gold and Silver Ltd. received a non-revolving, secured term loan of US$5 million from First Majestic Silver Corp. The loan was expected to help the company advance its plans to restart the La Guitarra Silver-Gold Mine Complex, which Sierra Madre acquired from First Majestic in March 2023. Berhe highlighted that since acquiring La Guitarra, Sierra Madre made significant advancements to the facilities, equipment, and infrastructure at the mine site.

He noted, "SM intends to use the proceeds of the loan to complete this work, which will include lead orders for critical mining equipment, processing facility upgrades, mill repairs, full staffing arrangements, and final underground development readied for operational restart."

Berhe also emphasized the financial potential of the project, stating, "Using long-term commodity prices of US$25/oz silver (Ag) and US$1,700/oz gold (Au), results in a project post-tax NPV5% of ~US$190MM. Using a 0.6x P/NAV multiple, we derive a Speculative Buy rating and a 12-month target price of CA$0.75/share for SM shares." He pointed out that Sierra Madre's share price had increased 85% since the March 2024 low, supported by the recent non-dilutive financing package.

*On June 13, Technical Analyst Clive Maund reviewed Sierra Madre Gold and Silver Ltd., explaining why he believed it was a Strong Buy. Maund asserted, "All of the pieces are now in place after long preparation for Sierra Madre Gold and Silver Ltd. to become a highly productive and profitable precious metals mining company." He identified three main planks of the company's impending success: the ongoing advancement of its properties towards production, the backing of First Majestic Silver Corp., and the accelerating major bull market in gold and silver.

Maund noted that the La Guitarra Project was expected to go into production in the third quarter of the year, and because it contained several important developed mines that had been in care and maintenance, the path to production was greatly expedited and much faster and less costly than would otherwise be the case. He also mentioned that "2023 saw a huge increase in Indicated and Inferred resources," reinforcing the potential for further discovery and extension of operations. 

Ownership and Share Structure

Sierra Madre provided a breakdown of the company's ownership and share structure, where management and founders own approximately 24.8% of the company. According to Reuters, President and CEO Alexander Langer owns 1.96% of the company, Executive Chairman and COO Gregory K. Liller owns 1.78%, Director Jorge Ramiro Monroy owns 1.33%, Director Alejandro Caraveo owns 1.16%, Director Kerry Melbourne Spong owns 0.43%, and Director Gregory F. Smith owns 0.16%.

Institutional investors own 12.9% of the company. Commodity Capital A.G. owns 4.4%, Reuters reported.

First Majestic Silver Corp. is a strategic investor and owns 44.9% of the company.

The rest is with retail and high-net-worth investors.

There are 152.69 million shares outstanding and 102.07 million free float traded shares, while the company has a market cap of CA$73.29 million and trades in a 52-week range of CA$0.25 and CA$0.54.

Important Disclosures:

1.  Sierra Madre Gold and Silver Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. James Guttman wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
3.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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* Disclosure for the quote from the Clive Maund article published on June 16, 2024

1. For the quoted article (published on June 16, 2024), the Company has paid Street Smart, an affiliate of Streetwise Reports, between US$1,500 and US$2,500.
2. Author Certification and Compensation: [Clive Maund of clivemaund.com] is being compensated as an independent contractor by Street Smart, an affiliate of Streetwise Reports, for writing the article quoted. Maund received his UK Technical Analysts’ Diploma in 1989.  The recommendations and opinions expressed in the article accurately reflect the personal, independent, and objective views of the author regarding any and all of the designated securities discussed. No part of the compensation received by the author was, is, or will be directly or indirectly related to the specific recommendations or views expressed

Clivemaund.com Disclosures

The quoted article represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be  only be construed as a recommendation or solicitation to buy and sell securities.