SilverCrest Mines Is Looking Far Into the Future

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Source: http://www.flickr.com/photos/sirqitous/

SilverCrest Mines is a small gold and silver producer in Mexico. The company owns and operates the Santa Elena Mine in Sonora. It also owns a large late-stage exploration project called La Joya in Durango, which will be producing gold, silver, and copper in the coming years. Finally it owns a smaller potential mine on its Santa Elena property — Cruz de Mayo, which will be a small silver and gold producer beginning in 2019.

Recently, the company made a very small deal, but one that I believe speaks to management’s commitment to long-term production growth and value creation. On January 14, the company made a deal with a tiny mining company called Evrim Resources to option the Ermitano property, which is adjacent to its Santa Elena property. Basically this means that if SilverCrest does what is stipulated in the contract then it will gain lawful ownership of the property.

The terms of the deal are as follows. First, the company paid $75,000 to Evrim. In the future, SilverCrest will owe $50,000 annually to Evrim until it comes up with mine and construction plans within 5 years. SilverCrest also has to spend $500,000 in the first year on exploration. The reason that Evrim is interested in SilverCrest developing this mine is that it is retaining a 2 percent net smelter return royalty on the metal produced at Ermitano. This basically means that Evrim will receive 2 percent of all of the revenue from the metal produced at Ermitano minus the cost of refining it.

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