Silver Lake Resources
Recommendation
Silver Lake announced the surprise takeover of struggling mining minnow Phillips River Mining (formerly Tectonic Resources) last week. In exchange for $20m in equity (0.0882 shares for every Phillips River share to be precise), Silver Lake will acquire two advanced projects within a giant 2,500km of tenements rich with historic mines.
The new assets themselves appear modest; Phillips River has outlined a small reserve of 440,000 ounces of gold. About a million ounces of gold resources have been identified, suggesting more drilling will likely increase reserves. Miserly grades of 1.9g per tonne (g/t) are offset by the presence of silver and copper in the ore. This might be a gold mine but, on first inspection, it’s no mint.
The purchase is, however, cheap. Phillips River, whose shares declined from over $1.00 in February last year to under $0.20 before the acquisition, lacked cash to undertake the kind of systematic, technology-rich exploration program that has proved so successful at Silver Lake. Managing director Les Davis, who has spent a lifetime working on the nickel and goldfields of Western Australia, hints there is potential for further success but only drilling will reveal if that is correct.
For shareholders, this acquisition is of only minor importance. Silver Lake is now an $800m miner aiming to produce 300,000 ounces of gold come 2014. The Phillips River purchase is an option on expansion but the main game lies elsewhere. Silver Lake's share price is up 17% since 20 Dec 11 (Hold - $3.11). Although this is slightly above the Take Part Profits price in our recommendation guide, we’ll wait for new production data before reviewing our recommendation. For now, HOLD.
Note: The Growth portfolio owns shares in Silver Lake Resources.