Friday, December 31, 2010

Argent Minerals (ARD) to be 4th "pure" Silver play?

Argent Minerals Limited (ASX: ARD) is a company I have been keeping tabs on for sometime. In July this year Argent purchased the Bullant Goldmine from Barrick Gold Corp. While it seemed like a reasonable price paid, it turned me away from Argent as I had been considering them a company predominantly exposed to Silver. However after an unattractive takeover offer from US Nickel (USN) Argent has since agreed to sell the Bullant Goldmine in a deal that looks quite good for ARD shareholders. This will also put Argent back in the position of a company heavily exposed to the price of Silver and they even say as much themselves in one of their recent announcements:

"The new structure is intended to convert Argent into a pure silver “play.”"

In September I mentioned that there were 3 "pure" Silver plays; providing the sale of the Bullant mine goes to plan (still requires shareholder approval, but boards of both USN and ARD unanimously agree) Argent could very well end up being the 4th "pure" Silver play.

The 3 I've spoken of previously are:

Cobar Consolidated Resources Limited (CCU)
Silver Mines Limited (SVL)
Alcyone Resources Limited (AYN)

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The structure of the Bullant Goldmine sale to USN looks like this:

- 44,000,000 USN Shares to be distributed to Argent Shareholders
- 19,500,000 ARD shares held by USN to be cancelled
- US Nickel to withdraw current takeover offer

Assuming the sale goes ahead as planned that would leave ARD with the following share structure:

101,891,251 Listed shares - 19,500,000 USN held shares
= 82,391,251 Shares

There are also 48,210,751 options (currently 20c strike, 30/06/11, ARDO), which the company has advised will have the exercise price reduced following the agreement:

"Argent will adjust the exercise price of its listed 20 cent options to reflect the capital reduction envisaged by the Agreement."

This likely means they will be reduced from a 20c exercise price to 16c (given the 20% reduction in shares, a 20% reduction in exercise price seems likely).

In theory this news should have pushed the price of the listed options higher as the capital to turn them into full shares has been reduced, no such increase has been seen and I suspect this is mainly due to this information having being missed by the market in general.

Following the sale of the mine there will be 44m USN shares distributed to ARD shareholders. I suspect option holders will convert to full shares to take advantage of this offer if given the opportunity, so assuming all convert (worst case) we will have 44m USN shares distributed amongst 130.6m ARD shares (or .34 of a USN share to be issued for each ARD share held). Potential for this fraction to be higher (for holders of ARD) if option holders don't convert or are not eligible. At USN's current share price (15c) this will add an additional 5.1c value (or more) to each ARD share and will allow ARD shareholders to maintain exposure to the Bullant Goldmine if they choose.

In April this year a scoping study on the Kempfield Silver project was completed, confirming potential for a profitable mining operation. Cash costs (net of Gold and base metal credits) were estimated at  AUD$10.27 (per ounce of Silver mined), however since that scoping study we have seen a significant rise in the price of Gold and the base metals which should allow for an even lower cash cost.

Further to this, an announcement in November confirmed that due to improved economics of the Kempfield project (due to rising Silver, Gold and base metal prices) the resource was to be upgraded following a change to the cutoff grades. The Kempfield project now has a reported resource of 31.6m ounces of Silver. With Argent's stake in the project soon to increase to 70% this means their share of the Silver resource is approximately 22m ounces.

The Kempfield Silver project has been very much overshadowed by the purchase and now sale of the Bullant Goldmine, but suspect as the sale is finalised early next year that both management and the market will be able to concentrate on the project which will make this company.

Further to Kempfield, Argent also has the right to earn a 70% interest in West Wyalong as well as Sunny Corner (Sunny Corner has a JORC Silver/base metals resource) with set expenditure needing to occur by June 2013. Also they hold 100% interest in phosphate and base metals exploration licenses at Louth (Wanaaring).

There are only a few stocks with serious exposure to the price of Silver on the ASX and even less that have a predominant focus on bringing a Silver mine to production. ARD will be one of the lucky few and that is bound to attract both investors and speculative traders in the short to medium term provided the price of Silver holds or continues to rise from here.





BB.

Disclosure: Position held in ARD. Not investment advice. Do your own research.

5 comments:

  1. Great post I agree 100% can't believe it's still below 20c they are working on a 1mtpa plant that will produce 1.3moz silver per ann+Lead,zinc,gold gross cashflows 50mill+

    jbmurc-holding 10th largest ARDO holding

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  2. Thanks for this info BB!
    Cheers Rtistik

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  3. Thanks for the comments guys. It's interesting that only a month ago I wouldn't have considered ARD with the takeover offer that was in play, but I think this coming agreement will benefit ARD holders hugely, not only does ARD get turned into a pure Silver play, but those interested in the Bullant Goldmine can also keep their exposure by holding the distributed USN shares.

    I look forward to seeing what ARD can achieve during 2011.

    Cheers

    BB.

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  4. Jo, Nice wrap on ARD. Do you know what calibre of management they have? Are they able to swing finance deals and take the company through the DFS/BFS, secure offtake agreements and project management stages to build a mine?

    Cheers
    Rhodes

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  5. Hi Rhodes, it was probably McHugh's expertise in the area of acquisitions (from experiences at Plutonic Resources) that landed them the Bullant Goldmine. It would have been interesting to see how well they'd handled this project through to resumption of production. Hopefully in the case where they don't have expertise in an area they bring in some new talent.
    Cheers.

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