This is a quick stock analysis of BCM – Bear Creek Mining – which is a precious metals company based in Vancouver, with asses in Mexico (gold-silver) and Peru (silver-lead-zinc).
Bear Creek Mining Stock in a Nutshell
- Small gold producer in Mexico.
- Large construction-ready silver project (Corani) in Peru.
- Long-term optionality play for Corani.
- Speculation bet that Corani gets financed.
- They need $425 million to finance the Corani capex.
Bear Creek Mining Stock Chart
Bear Creek Mining Company Basics
|Stock Name||Symbol (CAD)||Type||Category||Share Price (US)||FD Shares||FD Mkt Cap (6/26/2022)|
|Bear Creek Mining||BCM||Silver||Small Producer||.77 Cents||159M||$122 Million|
Cash: $25 million
Debt: $22 Million
Current Silver Resources: 300 million oz. (50 gpt AG).
Current Silver Production: N/A.
Current Silver All-in Costs (break-even): N/A.
Estimated Future Silver Resources: 200 million oz. (50 gpt AG)
Estimated Future Silver Production: 10 million oz. (AG)
Estimated Future Silver All-in Costs (break-even): $20 per oz.
Bear Creek Projects
Bear Creek Mining has two projects. One is Sonora, Mexio, and one is Puno, Peru.
- Let’s look at the large silver project in Peru.
BCM’s Peruvian project is called “Corani” and with 300 million oz at 50 g/t is one of the largest undeveloped silver projects in the world. The project is fully permitted and construction-ready.
Corani was on schedule for production in 2024, but they could not finance the project because of the rather large – $580 million – CAPEX. BCM tried getting the financing and got a $100-million streaming deal but that didn’t cut it. They now need a $425 million loan.
Once silver prices rise, there is a good chance Bear Creek will obtain financing. This possibility increases with their recent acquisition of the Mercedes gold mine – which they bought from Equinox – which can be used as collateral.
The first 3 years of annual production will be 16 million oz of silver, with low cash costs of around $1 per oz. Production will begin to drop after year 3, averaging 10 million oz for the rest of the mine life (22 years).
Because of base metal offsets (4.5 billion lbs of lead and zinc), the LOM cash costs at Corani are projected below $5 per oz, making it a cash cow at higher silver prices.
However, even with low cash costs, the after-tax IRR is only 23% at $18 silver. Plus, considering the $100-million streaming deal that I previously mentioned, Bear Creek might see its costs go much higher. My guess is that they’ll need at least $25 silver to finance the CAPEX.
Nonetheless, at higher silver prices, they are going to be a cash flow machine. With all-in costs (break-even) around $15, their potential annual free cash flow could be rather high. At $100 silver, they could have over $500 million a year in FCF (free cash flow). Plus, the first 3 years of 16 million oz of production could have massive free cash flow, well above $500 million a year (16M x $80 = $1.2B!).
With a 15x multiple, that would value them at around $7.5 billion for $500 million in FCF. My biggest concern for this company is its reliance on base metals (lead and zinc). However, the LOM cash costs are only about $10 per oz without offsets. That means this mine is likely economic at $30 silver without offsets. With offsets, they have low cash costs for the life of the mine (LOM).
If they manage to secure the loan, I would expect the build to take at least two years. My best guess is that they would then be in production in 2025. That is a long wait, but the upside potential is significant at higher silver prices.
2. The Mercedes Gold Mine
Bear Creek recently acquired this producing (Mercedes) gold mine in Mexico from Equinox Gold. They paid $75 million in cash, plus 24 million shares. Following the deal, Equinox now owns 28% of Bear Creek, plus has a 2% NSR. This was a great deal for Equinox. If Corani gets built, they will have sold Mercedes for a huge premium.
To make the $75 million cash payment, Bear Creek gave Sandstorm a gold stream at Mercedes. Sandstorm will receive 600 oz of 42 months, then 4.4% of production for 25% of the gold spot price. Plus, Beak Creek borrowed $22 million over 3 years.
Mercedes is not a large mine, and they will only produce 50,000 oz a year. But it is not a high-cost mine and will generate FCF. It wasn’t big enough for Equinox to want to keep it.
The breakeven cost per oz at Mercedes should be around $1200 to $1300. Projected FCF in 2022 at $1900 gold is around $10M (after the loan payment). That isn’t very much, but Mercedes will be worth around $100M, which they can use as collateral to finance Corani. Plus, with Equinox large stake in Bear Creek, nobody can steal Corani with a hostile takeover.
Is Bear Creek Mining a Good Stock to Buy?
Below, I will provide my scorecard for Bear Creek Mining. The closer the overall grade is to 10, the better investment BCM is.
Location Risk: 6.5
Upside Potential: 8
Production Growth Potential/Exploration: 6
Overall Rating: 7
Is Bear Creek Mining a Good Company?
Below, I have provided a few positive things about BCM.
- Large resources
- Significant upside potential
- Construction-ready project
Is Bear Creek Mining a Bad Company?
Below, I have provided a few negative things about BCM.
- Capex financing issues
- Marginal economics
- Low grade
- Potential political issues
Is Bear Creek Mining Stock Overvalued?
Briefly said, no, Bear Creek Mining is not an overvalued stock and, as per my calculations, it has over 20X potential in the medium to long term.
Below, I have provided my value estimate for BCM stock, at $75/oz silver. Yes, it’s a high silver price but I am only looking at silver stocks because I think the price of the metal will go up to at least $75/oz over the medium to long term.
- Production estimate for the long term: 10 million oz. (AG)
- All-In Costs (break-even): $20 per oz.
10M oz. x ($75 – $20) = $550 million annual FCF (free cash flow).
- $550 million x 5 (multiplier) = $2.75 billion
- Current FD market cap: $122 million
($2.75B – $122M) / $122M = 21.54
- Upside potential: 2,154%
Note: My All-In Costs are the expected costs that will generate FCF (free cash flow).
Note: I used a future FCF multiplier of 5 to be conservative (and because we don’t know how they will finance the capex). It’s likely that the quality silver miners will have higher multiples at $75 silver.
Is Bear Creek Mining a Risky Investment?
Yes. Every mining stock is a risky investment and should only be approached by people who are not afraid to lose money. Nonetheless, I have provided a risk-reward estimation below to give you a better idea of the specific risk with this stock.
The main risk is the silver price. Unless it rises, nobody will be making money in silver miners. In fact, a volatile silver price will likely put you underwater at some point, and perhaps significantly down.
Another risk factor is Bear Creek’s main jurisdiction – Peru – which is an area of the world that is not considered mining friendly right now and will likely be going through turbulent times for a while.
Further on, taxes and royalties can increase and zap the share price. That’s in addition to inflation or other factors that push up BCM’s costs. A myriad of things can go wrong.
To take on that risk, the reward has to be high. A 100% return, in my opinion, is simply not enough for accepting high risk. We want outsized returns. For Bear Creek, the upside potential is very high and enticing, although it is a speculative bet for the long term. We are expecting the silver price to rise and for them to obtain a $425 million loan.
While the economics and FCF look strong, there is some economic risk because they depend on base metals (zinc and lead) for their low costs. Plus, because of inflation, their large capex could easily increase. Also, companies often have costs higher than expected or grades lower than forecast. So, there are several unknowns.
Will I Invest in Bear Creek Mining?
Here is my thesis on BCM in a nutshell.
Large economic silver projects are rare. There are very few large silver projects in the world. Corani has low costs, although somewhat dependent on offset base metals. They should be able to generate strong FCF. In fact, it is quite likely they will generate huge FCF if silver prices rise. The first 3 years, they will produce 16 million oz of silver. The math is quite impressive at $100 silver and break-even costs of $20. You get $80 x 16 = $1.3 billion.
Another thing I like is that they are unlikely to get acquired, not with Equinox owning 28% and recognizing the huge upside potential. Once silver gets to $30, Corani is going to look pretty enticing as a project. The payback will be less than 3 years. Here is the math the bankers will use: 16M oz x $15 = $240 million in FCF at $30 silver. With that much expected FCF and the Mercedes mine as collateral, it should be possible to finance the $425M loan at $30 silver.
More Analyses From Don Durret
Thank you for reading, and don’t hesitate to correct me in the comments if you think I’m wrong.
– Don Durrett.
Don Durrett is not an investment advisor. Don Durrett has a high risk appetite. Don Durrett might own, buy, and/or sell shares of companies discussed herein without prior notice. Resource Talks is not responsible for the quality nor accuracy of information provided herein. Resource Talks is not receiving financial compensation from GoGold Resources for the publication of this article nor discussing this company. Don Durret is receiving financial compensation from Resource Talks for the production of this article. The information provided in this publication – and all other publications by Resource Talks – is impersonal in nature and meant for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple licensed, experienced, and qualified investment advisors. Get numerous opinions before taking your own decision in the end. The minimum risk on any investment mentioned in this publication is 100% loss of capital.
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