NEW YORK (ResourceInvestor.com) -- It looks like Bear Creek Mining’s [TSXv:BCM] Corani deposit is for real.
Just days ago, the Vancouver-based explorer released an initial resource estimate of some 250 million ounces of silver for the deposit, located in southeastern Peru.
For silver bulls, the news was a validation of their belief in the up-and-coming junior, which leapt onto the investment scene last summer after some positive initial assay results at Corani. Since spiking to above C$3.50 on that news, Bear Creek shares have tacked on an additional 65%, recently trading in the neighbourhood of C$5.75.
With the implicit backing of pure-play Silver Wheaton [AMEX:SLW; TSX:SLW], which owns some 15% of outstanding shares, Bear Creek is quickly becoming one of a handful of junior silver plays of choice. If the spot price of silver continues to climb in the coming months, investors can look for shares of Bear Creek – which now have momentum and investor sentiment solidly in their favour – to lead the sector forward.
Corani Unveiled
Early this week, Bear Creek released the results of its first independent resource estimate for Corani, based upon on 83 drill holes on the property. Conducted by SRK Consulting, the results detailed a total resource estimate of 250 million ounces contained silver at a cut-off grade of 0.64 oz/t.
While only 44.5 million ounces of this deposit are within the measured and indicated category, investors can certainly look for more ounces to move over to M&I as the company continues to drill additional holes. In fact, the entire resource base will likely grow, as drilling is already in progress to the north (where the deposit remains open), and in another target zone a few kilometers to the south. Already, some 20 holes have been completed that were not included in the initial estimate.
Corani also contains substantial amounts of lead and zinc. The property hosts inferred resources of 1.03% lead and 0.58% zinc within 88 million tonnes, and M&I resources of 0.79% lead and 0.23% zinc within 28 million tonnes. Overall, the deposit hosts about 4.23 silver-equivalent oz/t over a resource base of 115 million tonnes.
Bear Creek currently has the option to purchase 70% of Corani from mining titan Rio Tinto [NYSE:RTP; LSE:RIO], so long as the company meets $5.4 million in payments by January 2008. While this seems all but guaranteed, at that time Bear Creek can also acquire the remaining 30% of the project for a sum of $5 million. Given the developing size of the project, however, it seems quite possible that Rio may elect to retain its minority interest.
If the project exceeds 10 million gold-equivalent ounces – or approximately 540 million ounces of silver at current prices – Rio has a back-in option to acquire 60% of the project, leaving Bear Creek with only 40%.
Bear Creek is set to spend another $5.9 million developing Corani over the next 12 months. With a scoping study due out in the second half of the year, hungry investors won’t have to wait long for additional details.
Company Valuation and Comparables
Company management is fond of comparing Corani to other emerging silver projects in the Americas. For example, Apex Silver’s [AMEX:SIL] San Cristobal deposit contains a resource base of 219 million tonnes (compared to Corani’s 115 million tonnes) with silver equivalent resource (including all lead and zinc by products) grading 5.6 oz/t (compared to Corani’s 4.23 oz/t).
So, for their resource of approximately 1.2 billion silver-equivalent ounces, Apex sports a market cap of $1.2 billion (or $1/ounce). Bear Creek compares quite favourably; the company has a $220 million market cap for their 70% share (340 million ounces) of 486 million silver-equivalent ounces (for a valuation of $0.64/ounce).
Obviously, San Cristobal is a much better defined and advanced project – but the comparison is clear in that management believes there is room for significant upside appreciation.
When compared to miners with less-developed projects, however, Bear Creek’s stock looks to be pretty fairly valued given its current resource base. Western Silver [AMEX:WTZ; TSX:WTC], which is to be acquired by Glamis Gold [NYSE:GLG; TSX:GLG] for what now amounts to approximately $1.2 billion, sports a resource of 581 million tonnes at Peñasquito with a silver-equivalent resource grading 3.1 oz/t. So, for a resource of approximately 1.8 billion silver-equivalent ounces, Western is valued at about $0.66/ounce – nearly the same price as Bear Creek.
Bear Creek’s upside comes in with its ability to grow Corani and its exploration potential – which management and many analysts believe may be substantial. And, of course, prevailing metals price figure significantly in its valuation.
Led by Chairman Catherine McLeod-Seltzer (the founder of mid-90s Barrick acquisition Arequipa Resources) and President Andrew Swarthout (who was responsible for several discoveries with Southern Peru Copper), Bear Creek definitely has the exploration and mine development chops to back up its statements.
Exploration Potential
Corani also has a gold prospect that remains underexplored and undefined. Significant upside exploration potential for Bear Creek may also lie with its Santa Ana property, located close to the Bolivian and Chilean borders. Drilling is set to begin on Santa Ana in April, and some analysts believe the property has the potential for a deposit similar in size and scope to Corani.
The property has a near-surface, bulk-tonnage silver-lead-zinc target, and Bear Creek owns 100%. But while prospective samples from surface outcrops have been collected, the property’s potential remains a question mark. Santa Ana has never been drilled, and the only mining on the premises dates back to the colonial period.
Conclusion
With Bear Creek’s solid development plans for Corani and further exploration potential, investors can expect the company to lead the charge upwards in a rising silver market. Astute investors will be looking for the stock to pop on any solid exploration news from Santa Ana or on the release of a favourable scoping study on Corani.
