Monday, March 28, 2016

Impact Silver - Decent Results in 2015 But The Future Is A Question Mark


  1. Impact Silver, contrary to its peers, does not report the updated mineral resource estimates - therefore it is a hard task to present any opinion on the company's potential
  2. In 2015 the company delivered quite good operating and financial results - however, despite mining the high grade ores, the company was not able to substantially increase its revenue per ton sold, expressed in Canadian dollars
  3. In my opinion, Impact Silver's results are highly leveraged to silver prices - I would even say, they are leveraged too much.

It is a problem to analyze Impact Silver. As I stated before, the company does not deliver the up-dated mineral resource estimates (the only exception is the last estimate of mineral resources, prepared for the New Capire deposit - currently put on care and maintenance). If I cannot find the details on the size and quality of a company's mineral base, I am not able to assess whether such a company has any potential. Impact Silver is a such a case. Therefore in this article I am trying to cover the current developments with no attempt to answer a question how these developments may affect the company in the future.

First of all, I think that  the company's current philosophy is to mine as highest grade ores as possible. If such a strategy is applied the question of high grading arises.

Without going into details, "high grading" means that a company is trying to increase its operating cash flow through mining the ores of the highest grades as possible. Therefore, during hard times, when silver prices are relatively low, Impact Silver is able to generate positive cash flow. In other words, high grades mean more silver extracted from a ton of ore, which, when combined with the strict cost control system, results in higher cash flows. However, a deposit, depleted of the high grade ore during hard times, may be uneconomic in the future (the ore left may be of much lower grade than that required for the profitable mining).

Is Impact Silver such a case? I do not have any idea because, as I noted above, the company does not deliver the updated estimates of its mineral resources. So let me leave this problem open for additional digressions in the future.

Below I am summarizing the 2015 developments, reported by the company.

Firstly, in 2015 Silver Impact produced the highest amount of silver in its history:

As the chart shows, the company delivered 950,059 ounces of silver, 30.9% up, compared to 2014.

What is more, the company was able to minimize the gap between its production costs and revenue:

It is an interesting chart. It shows that Impact Silver was able to decrease its accounting costs of production from $105.92 in 2013 to C$94.63 per ton of ore sold in 2015 (a decrease of 11.9%).

Unfortunately, the revenue delivered through selling one ton of ore was, more or less, the same in 2013, 2014 and 2015. Why am I writing "unfortunately"? Well, the average price of silver, expressed in Canadian dollars, went slightly up from C$1,449 in 2013 to C$1,481 per ounce in 2015 (an increase of 2.2%). It looks like that despite high grade ores mined by the company in 2015 (look at the chart below), it was only able to maintain its revenue per ton sold at a relatively unchanged level of C$84.96 per ton, compared to 2013 and 2014.

Well, in my opinion, the company has no moat. If silver prices do not go up in the coming future, Impact Silver is condemned to report results not better (if any) than those presented in the table below (2015):

Indirectly, my opinion seems to be supported by the behavior of Sprott Asset Management - one of the largest shareholders of Impact Silver. The chart below shows that this important precious metals asset manager started to sell the company's shares since late 2015:

According to the last announcement (February 10, 2016), on January 29, 2016 Sprott Asset Management held 6,292,500 shares of Impact Silver (8.6% of fully diluted shares).

                                             source: Impact Silver presentation (page 21)

No comments:

Post a Comment