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This blog has been replaced by Estimating Genco Resrouces Fair Market Valuation, which offers a dynamic view (daily target price updates) of Genco valuation relative to other silver and gold producers, exchange rates, NI 43-101 fundamentals and spot market metal prices.
I continue to believe that the news from Genco that followed the clearing of the road block announcement have all been positive steps towards an extraordinary future stock price gain. Although the stock prices has fallen sharply since November 30, 2009 I have not seen any reason to change my very positive outlook on Genco Resources.
November 30, 2009, by Dennis Boyko, GoldMinerPulse.com (with minor updated December 1, 2009)
I believe the November 30, 2009 Genco Resources news release provides an excellent opportunity for investors to take advantage of expected Genco stock price appreciation.
The news release was
Genco Reports Removal Of Roadblock.
Quote:
Full access to La Guitarra has been restored. In the near future, Genco will focus on resuming production from the underground resources.
Workers are due to return to work at the mine on December 7, 2009.
Genco's VP, Exploration, Mr. Andrew Tunningley said, "Genco is extremely pleased to have resolved this issue and
looks forward to working closely with the returning workforce and local communities. In light of improving market conditions,
we are keen to re-commission the existing 320 tonnes per day plant and hope to return La Guitarra Mine to full production by mid 2010".
December 1st, 2009 will be the first day of GGC.TO trading after the removal of the illegal road closure to La Guitarra. The significance of this news event can be seen by reviewing the evolution of the management analysis and discussion of the La Guitarra situation. All Genco MD&A filings are available from Sedar and a few MD&A quotes are reproduced below from each of the 4 filings made in 2009.
As of the November 30, 2009 close, Genco had an average ore value of US$142 per tonne which is well above the average value of US$80 per tonne for the 25+ silver miners GoldMinerPulse is currrently tracking. However, Genco's average market cap per ounce of silver equivalent is well below average (US$0.29 per eq oz on November 30th versus an average of US$0.91).
I strongly believe that the valuation of Genco has been depressed by the 13+ month shut down at La Guitarra. As Genco returns the mine to production and resumes work on the 2008 Feasibility Study, Genco's market capitalization per ounce of silver equivalent should rise towards levels of producers such as Great Panther Resources Limited, Fortuna Silver Mines, Pan American Silver, and explorers with similar deposits such as Orko Silver. If my event interpretation is correct, a Genco stock price appreciation of 2 to 5 times from the November 30th close (Genco was C$0.59 at the close) over the next year would not be unreasonable assuming the current price of silver/gold uptrend continues (or holds steady).
Trading on December 2009 for Genco should be worth watching. For reference, the latest Genco closing price and related metrics are produced below (and updated after the close of each market trading day) for ease of tracking this event interpretation.
In short, I believe this is a case of where buy the news (instead of selling the news) applies. I have created a special Silver Ore Value chart, based on November 30, 2009 closing prices, to show the predicted Genco price evolution based on an idealized fair market valuation zone for junior silver producers (more in a future blog on this valuation strategy). Note, some of the 28 silver mining companies tracked by GoldMinerPulse have been removed from the chart for clarity.
Quote:
An illegal walkout and subsequent blockade by former employees of the primary mining contractor, SIMSA, halted
production at La Guitarra in late October 2008. As of the date of this MD&A, La Guitarra Mine remains closed due to
the blockade. As a result, the Company reported no sales during the nine-month period ended September 30, 2009.
Genco continues to evaluate several operating scenarios for La Guitarra Mine.
In the long-term, the Company's primary focus is significant production expansion at La Guitarra Mine.
Genco does not anticipate further investments in exploration, development and infrastructure until
full access at La Guitarra Mine is restored and the completion of additional financing as needed.
Quote:
La Guitarra Mine has been closed since October 2008, due to an illegal walkout and subsequent
blockade by former employees of the primary mining contractor, SIMSA. Until there is certainty regarding
access, La Guitarra will remain closed. Genco is confident that access to La Guitarra will be restored.
Genco is using the work stoppage as an opportunity to reassess staffing requirements, production rates
and revise the mine plan. As of the date of this MD&A, La Guitarra Mine remains closed due to the
blockade. As a result, the Company reported no sales during the six-month period ended June 30, 2009.
The Feasibility Study, originally scheduled for completion in September 2008, has not been completed or
released. Work continues on the Study and Genco expects it to be completed and released in 2009.
Genco anticipates the Feasibility Study will offer a positive recommendation for expanding mining and
milling at La Guitarra Mine. The Company's primary goal in the long-term will be significant production
expansion. Genco does not anticipate further investments in exploration, development and infrastructure
until the Feasibility Study is released, mine access is restored and additional financing is secured.
Quote:
Since October 2008, La Guitarra Mine has been closed due to a blockade by former employees of the
primary mining contractor, SIMSA. The work stoppage originated as an illegal walkout and a subsequent
blockade of mine access by some SIMSA employees. Until there is certainty regarding access, La
Guitarra will remain closed. Genco is confident that access to La Guitarra will be resorted. Genco is using
the work stoppage as an opportunity to reassess staffing requirements, production rates and revise the
mine plan. As of the date of the MD&A, La Guitarra Mine remains closed due to the blockade. As a result,
the Company had no sales during Q1 2009.
The Feasibility Study, originally scheduled for completion in September 2008, continues to be delayed.
Upon its release, Genco anticipates that the Feasibility Study will offer a positive recommendation for
expanding mining and milling at La Guitarra Mine -- the Company's primary goal in the long-term will be
significant production expansion. Genco substantially reduced investment in exploration, development
and other infrastructure as compared to previous quarters. Genco does not anticipate considerable new
investments in exploration, development and infrastructure until the Company releases the Feasibility
Study and secures financing for mine expansion.
Quote:
As of the date of this MD&A, the Guitarra Mine is closed due to a blockade of the Mine by former employees of the primary mining contractor, SIMSA. The work stoppage originated as an illegal walkout and blockade of mine access by some SIMSA. Until such time as there is certainty regarding access, La Guitarra will remain closed. The Company is confident that access will be restored soon, but access is not guaranteed. Genco is using the work stoppage as an opportunity to reassess staffing requirements, production rates and revise the mine plan. As a result of the labour action, Genco's fourth quarter sales are significantly lower than prior quarters.
The Feasibility Study, which was scheduled to be available to the Company in September, has been delayed.
Upon release, Genco anticipates the study will offer a positive recommendation for expanding mining and milling at the Guitarra Mine,
and the Company's primary goal is to significantly expand production in the long term.
Investment in exploration, development and other infrastructure is expected
to be significantly reduced from previous quarters until such time as the Feasibility Study is released and financing for mine expansion is secured.
Genco believes continued exploration of the Temascaltepec District will lead to significant
increases in reserves and resources and the discovery of new areas of mineralization.
The Company is confident the planned expansion of the Guitarra Mine is the first step in unlocking the District's potential.
The StockChart.com Weekly View shows GGC.TO sold off from a base of roughly $1 around the time of the start of the La Guitarra access issue (October 2008).
The Canadian Insider shows current CFO, Wayne Moorhouse accepted more than 250K shares as compensation for services November 2009. The same page shows Richard Hughes, the recently appointed chairman of the board, purchased 100K+ shares in Genco during September 2009. Based on Canadian Insiders and the 2009 Annual Information Form Genco filed March 31, 2009 (available at Sedar), I believe the Genco board continues to hold more than 19% of the outstanding Genco shares.
See the GoldMinerPulse Genco Resources metal valuation report for daily closing price valuation updates.
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