Monday, September 5, 2016

Aurcana - the Shafter Project Is Not Supportive For The Current Share Prices

On August 31, 2016 Aurcana published the Preliminary Economic Assessment for The Shafter Mine. Unfortunately, the announcement disclosed only basic metrics but the figures announced were, in my opinion, quite poor (keeping in mind at what prices Aurcana shares are trading today).

Let me present the main economic indicators:

source: Aurcana

All measures were calculated assuming the price of silver of $20 per ounce over the life of the project. It means that Shafter is not an option on prices of silver, which is good (today silver trades around this value).  

The project presents an after - tax net present value of $18 million. I think that the discount factor applied by the company (5%) is too low but...let it be.

Now, according to 2Q 2016 balance sheet, at the end of the last quarter the company was holding cash of  $1.1 million. There was no debt. It means that Aurcana's equity is worth $19.1 million (the project's NPV of $18M plus cash of $1.1M). At today's share count of 169 milion, one share of Aurcana is worth $0.11.

Further, on September 2, 2016 Aurcana shares were trading at $0.46 a share so it seems that these shares are substantially overvalued.

Summarizing - although the project's parameters look good (high after -tax internal rate of return of 40.9%) the overall figures are not impressive when compared to the current share prices. Therefore:
  • decent project's economics should help the company to find financing sources to start the Shafter construction
  • current share prices are not supported by the project economics.
Finally, Aurcana should publish the Shafter PEA within 45 days. When it is online I will look at it once again. 

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