Every once in a while, on those special occasions when you know with every fiber of your being that you have information or perspective that can help protect people from making poor decisions, it may be permissible to turn up the volume just a hair.
You won't hear me shout, but I do intend to ensure that my voice is heard on this particular day.
The degree of conviction I bring reminds me of a day -- nearly three years ago -- when I raised the volume a bit to highlight the unfathomable bargain that was Silver Wheaton
The real story in full voice
On this particular occasion, I raise my writer's voice to defend the good name of Great Panther Silver
2011 marks the sixth consecutive year that Great Panther Silver will achieve year-over-year increases in production volume from its profitable pair of mining operations in Mexico. After growing output by an impressive 245% between 2006 and 2009, the company embarked upon an aggressive three-year plan to expand production by 72% more to 3.8 million silver-equivalent ounces by 2012. Over the same period, Great Panther expects to double its mineral resources to more than 40 million silver-equivalent ounces to secure at least a 10-year mine life for both operations.
Simultaneous growth trajectory for Great Panther Silver's annual output (data at left) and resource base (data at right).
Because I know from experience that the mining industry's most effective enhancements of shareholder value often come at the tip of an exploration drill, I pay close attention to the long-term resource expansion prospects at a project like Guanajuato. This mine complex sits at the heart of one of the world's premier silver and gold epithermal vein systems. Endeavour Silver's
Of course, we wouldn't call them mines at all if extracting their treasure was easy; we'd call them vaults. From first discovery to outgoing shipment, this industry is fraught with pitfalls and unexpected detours that make temporary hiccups par for the course. The expertly managed gold producer Agnico-Eagle Mines
The whole story, minor hiccups and all
The miner saw its cash costs surge to $11.84 per ounce during the period as both Topia and Guanajuato mills processed some lower grade material. The only thing constant about ore grades is that they are variable! Copper miner Taseko Mines
Meanwhile, the more obvious hiccup during Great Panther's second quarter related to the steep drop in quarterly net income caused by delays in shipments of concentrate from the Guanajuato mine. Archer explains: "The concentrates from Guanajuato are somewhat different than others such as those produced from our Topia Mine in that the former contain no base metals. While Topia produces a silver-rich lead concentrate and a zinc concentrate, both of which are sold through a metal trader to smelters in Asia, the Guanajuato concentrate is a silver-and-gold-rich pyrite concentrate. Only certain smelters will accept this type of material, and we were selling through a metal trader to an overseas smelter."
It seems many smelters around the world are operating at or near capacity at present, giving them the upper hand with respect to sourcing material, pricing, and the types of concentrates they favor. According to an unnamed metals market source familiar with the issue, gold and silver pyrites like the Guanajuato concentrate would be considered relatively "complex concentrates," and metal traders are finding them "more difficult to place" as smelters give priority to less complex materials like high-grade copper concentrates. Because of this developing situation, my source informs me, Great Panther's experience would "not be unique in this market."
I also spoke Tuesday with Hugh Clarke, vice president of corporate communications for Endeavour Silver, who went on the record to share his assessment of Great Panther's excess concentrate inventory as a "small issue" that the company is "likely to resolve over the course of the next couple of quarters." Because these two miners are competitors, I consider this vocal show of support quite remarkable. Great Panther's Archer confirms: "We have worked hard to rectify the situation and have made arrangements with another Mexican producer to treat our concentrates and produce dore bars, thereby reducing the inventory to normal levels by year end. The effect of this on our financials will be temporary in that, while Q2 revenues and income were lower, Q3 and Q4 should be higher than normal."
As you can see, the real story behind Great Panther Silver is a story of steady and profitable production growth paired with an exciting long-term fundamental outlook. After raising $24 million in a well-timed bought deal financing, the small-cap miner commands a $37.7 million cash position (and no long-term debt) with which to pursue its strategic goal to acquire a third mining operation. What's more, in Part 2 of this discussion (stay tuned!), I will show why I consider that the negative piece that appeared Tuesday to be, in Archer's own words, "so full of holes that it makes the Titanic look airtight."
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, AuRico Gold, Endeavour Silver, Great Panther Silver, Silver Wheaton, and Taseko Mines. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.