Bear Creek Mining
I don't review too many explorers here on Goldstocksdaily.com just because of all the speculation involved. However there are some that are worth mentioning. All of these have one thing in common, they have big gold and/or silver deposits. Bear Creek Mining is one of those companies with their main focus being on silver exploration in Peru. Their mission is to build a growth-oriented, large-cap silver mining company producing 15 – 20 million ounces of silver per year by 2014. Their Corani and Santa Ana Projects contain more than 500 million ounces of silver, plus by-product base metals.
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The Pre-Feasibility Study for the flagship Corani Project estimates average annual production of 10 million ounces for the first six years of a 27-year mine life, with low cash costs and fast payback of capital costs. The scoping study for Santa Ana has examined a proposed, low-cost "pure silver" mine producing 5 million ounces annually in the first six years of an estimated 12-year mine life. Both projects are undergoing Feasibility Studies.
These two newly discovered deposits advancing towards development are capable of producing at least 15 million ounces silver per year, plus significant base metal by-products.
Bear Creek acquired Corani as a grassroots prospect in early 2005, and reported its first resource estimate of 250 million ounces of silver in March of 2006, just nine months after collaring the first drill hole. Subsequent drilling programs continued to expand resources within three adjacent open-pittable deposits: Main Corani, Minas Corani and Corani Este. This work established Corani as a world-class silver project with robust base metal credits and high-grade silver mineralization in the cores of all three deposits.
An early 2008 preliminary assessment or scoping study demonstrated a robust large-scale (30,000 tonnes per day) project, however changing commodity and capital markets led to a subsequent decision to examine a smaller-scale (15,000 tonnes per day) optimized project (higher-grade) with reduced capital and operating costs.
The Pre-Feasibility Study released in mid-September 2009 was based only on proven and probable reserves containing 258 million ounces of silver, plus 2.9 million pounds of lead and 1.4 billion pounds of zinc, or 475.3 silver-equivalent ounces. The project also hosts another 107.4 million ounces of resources in all categories, or 243.4 million silver-equivalent ounces. The proposed 15,000-tonne-per-day mine is projected to produce 10 million ounces of silver per year for the first six years of operation, or 6.4 million ounces per year over the proposed 27-year mine life, plus by-product lead and zinc. The cash cost per ounce of silver produced is approximately $1/oz for the first 10 years, and less than $3/oz life of mine. Initial capital costs are estimated at US$339 million, with capital payback in less than three years. A feasibility study has commenced with the expected completion in mid-2011.
The Corani Project is 100% owned by Bear Creek Mining. In 2008 the company purchased the remaining 30% of the project it did not already own with a series of scheduled payments, the payments extending out to the third quarter of 2012. The remaining payments are:
* US$10M cash payable Dec 31, 2010
* US$10M cash payable Sept 30, 2011
* US$15M cash payable June 30, 2012
CORANI PREFEASIBILITY STUDY ECONOMICS
* Places 258 Million ounces Ag (475 Million eq Ag ounces) into Proven and Probable Reserves
* 5% NAV = $348 Million IRR 25% (after tax) (Ag $13/oz, Pb $0.70/lb,Zn $0.65/lb)
* 5% NAV = $874 Million IRR 49% (after tax) @ May 28/10 spot prices(Ag $18.53/oz, Pb $0.81/lb, Zn $0.85/lb)
* Cash cost, net of credits; $1.06/oz Ag first 10 years $2.87/oz Ag LOM
* Capex – $339 Million
* Capital Payback in 2.9 years
* Life of mine – 27 years
CORANI PREFEASIBILITY STUDY DESCRIPTION
* 15,000 tpd – opportunity for expansion being evaluated in Bankable Feasibility Study
* 10 Million oz Ag per year for first 6 years; 6.4M opy LOM
* Silver equivalent ounce basis, 17.1M opy for the first six years and 12M opy for the life of the project
* Stripping ratio 1:56:1
* Low pre-production stripping < 9 MT
* Separate, highly marketable lead-silver and zinc concentrates
* Project value optimized at; 75% silver, 72% lead and 71% zinc recoveries
* Opportunities being taken into feasibility:
o Raise throughput capacity
o Continue to improve recoveries and concentrate quality
Santa Ana
The resource also remains open for further growth. Exploration drilling is expected to increase the resource and test for the presence of bonanza-grade feeder structures. A feasibility study has commenced and is expected to be completed in September 2010.
Santa Ana is the ideal compliment to the development of the Corani Project as it represents a "faster-track" project requiring significantly lower capital costs with a shorter lead time for construction and commissioning.
Preliminary Economic Assessment
* Pure silver producer averaging ~ 4.6 million ounces / year
* Low Cap Ex ($51M) with a two and half year payback
* NAV = $68M (5%), IRR 29% @ $13/oz Ag
* Low Cost, Open Pit Mining (10,000 tonnes per day)
* Conventional heap leach, 70% silver recovery
* Cash cost per ounce $7.47
* Excellent up-side exposure to:
o increase silver price ($18.27/oz Ag increases NAV to $196M and IRR to 65%)
o demonstrated resource expansion potential
* 12 year mine 17 life producing 54 million ounces of silver
* Straight-forward permitting and construction
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Financials and Production
As of June 30, 2010 the company had $36 million in cash and $35 million in debt(payments due for Corani listed above).
70 million shares outstanding
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Conclusion
Bear Creek Mining has two advanced stage silver projects located in Peru that will produce a total of 15 million oz of silver per year if/when they are developed. Santa Ana will first be brought into production since the cost for that project is only $51 million and it will produce 4.6 million oz per year over 12 years. The feasibility study should be released at anytime and when it is I imagine that an equity offering will soon follow.
Corani is a much larger silver project and with a capital cost of of $339 million, Bear Creek is going to have to wait to develop this. The feasibility isn't expected until the middle of next year so they have time. I think it's clear that the main goal is to start construction of Santa Ana as soon as possible, and hopefully the shares will get re-rated when investors realize the company will be a major silver producer in the very near future.
Bear Creek currently has a market cap of $390 million, if they can get Santa Ana into production by late 2011-2012 then the shares will probably double. I have a feeling though the company will be bought out before then. These are two major advanced stage silver projects, companies like Pan American or Coeur might try and come in and scoop up Bear Creek. There are many possible suitors actually. If the company had a couple hundred million in cash I would say they should just develop the projects on their own. They could create a tremendous amount of shareholder value doing this. However, with the lack of cash and the combined cost of $400 million for the two projects, a substantial amount of dilution would have to take place to fund these. That is why a buyout is the most likely outcome.
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