Silver Storm Mining, meaningfully undervalued vs. peers?

Silver Storm Mining’s (TSX-v: SVRS) / (OTCQX: SVRSF) share price has performed well in the past year, more than doubling from its 52-week low, yet the top dozen silver-heavy producers/developers are up an average of +641%.

In the past year, Capitan Silver is +1,014%, Discovery Silver +609%, Santacruz Silver +592%, Argenta Silver +539%, Andean Precious Metals +448%… Silver Storm is +104%, but has a compelling story.

I think Silver Storm shares have ample room to run. Note: management is currently raising C$13M (gross) in equity capital at C$0.25/shr.

As a reminder, the Company has two assets in mining-friendly Durango State, Mexico, the 100%-owned, past producing La Parrilla Mine complex, and the very large (210M Ag Eq. ounces at spot pricing) San Diego project.

The Company remains valued at a steep discount to the producers in the following chart. The current silver (“Ag“) futures price is US$42.83/oz, I use a base case price of $36.50/oz for CY 2027.

Assuming Silver Storm’s LP complex produces3.0M Ag Eq. oz in 2027, with an EBITDA margin of US$15.5/oz, that’s [$3 x $15.5 x 1.38 (FX) = C$64M of EBITDA, and an EV/EBITDA ratio of 2.7x.

Producers in the chart are valued at 8.9x 2027e EBITDA. I add C$10M in debt, on top of multiple equity raises, to Silver Storm’s EV to cover the cash needed to get LP back into production. 

At spot pricing, LP has ~25M Indicated + Inferred Ag Eq. oz at a strong weighted average grade of ~255 g/t. There’s an estimated 1M tonne stockpile grading 60-65 g/t Ag Eq., and a 2nd high-grade stockpile of 43,151 tonnes at 217 g/t Ag.

Those stockpiles are worth ~C$120M at spot, pre-recoveries. Processing above ground stockpiles, possibly blended with newly mined ore, offers a fairly low-risk (logistically simple) restart scenario.

An additional 3.8M ounces are thought to be recoverable from mineralized pillars. Therefore, depending on throughput, there’s enough ore for roughly 6-8 years of operations.

First Majestic owns 26% of Silver Storm and Eric Sprott 12%, but those figures will change modestly after the capital raise. Restarting production at LP is the primary focus with a goal of that happening by 6/30/26.

LP hosts 40 contiguous mining concessions spanning 38,128 hectares and five underground mines surrounding a mill. The processing plant consists of parallel 1,000 tpd flotation & 1,000 tpd cyanidation leach circuits to treat both oxide & sulfide ores conventionally.

Both ore types contain Ag as their principal economic component, significant lead & zinc, + minor amounts of Au. Oxide ore is processed by cyanide leaching to produce doré bars.

Sulfide ore is processed by differential flotation to produce an Ag-rich lead concentrate and a zinc con. The replacement value of the infrastructure at LP alone is estimated at US$150M.

An average of 3.5M annual Ag Eq. ounces (~67% Ag + ~33% Pb/Zn) was produced between 2012-2018. First Majestic operated the Complex at up to 4.67M oz/yr in 2014, when Ag averaged ~$19/oz, 56% below the futures price.

If Silver Storm only had LP, and LP didn’t have medium-term upside beyond 3.0M Ag Eq. oz/yr, then the Company’s pro forma EV of ~C$171M would be far less compelling.

In past articles I’ve focused on near-term production potential at LP, but the pink elephant in the room is the large, 100%-owned San Diego project.

6-18 months ago, with Ag a lot lower than $42.83/oz, and several C$10s of millions needed to properly advance SD to the next development stage, investors did not ascribe a lot of value to it. They still don’t.

However, peer Ag-heavy valuations have improved so much that San Diego can no longer be ignored. In the following chart, SD compares favorably to low-medium-grade peers.

Peers have an average grade of 121 g/t Ag Eq. on an average of 181M Ag Eq. ounces, which is close to SD’s metrics. If SD were valued at 50% of peers, it would be “worth” C$211M. Even at 33% of peers, SD is “worth” $141M.

Please take a moment to compare San Diego to the others. It’s a bit earlier stage, but in the center of the fairway in terms of grade & scale. If Ag continues to run, San Diego’s value will become more important and obvious to investors, strategic partners & acquirers.

How can San Diego’s valuation not be higher than it was back in late 2020 when valued in a single asset predecessor company as high as C$110M? At that time, Ag was > 35% lower, and debt-laden producers were in far worse financial shape.

Readers should note that CEO Greg McKenzie uses a conservative methodology in the Company’s resource estimates for LP & San Diego. While the vast majority of juniors assume 100% recoveries, Silver Storm reports net of estimated recoveries.

By my reasoning, not guidance from the Company, if Silver Storm reported its resources with assumed 100% recoveries, LP’s & San Diego’s resources would be 15%-30% larger.

Notably, SGS Canada reported that Silver Storm’s resource could potentially be expanded by 20-50 million tonnes at 100 to 150 g/t Aq Eq. The midpoints would deliver an incremental 141M Ag Eq. ounces for a new total of 351M Ag Eq.

In this bull market, imagine how many companies can comfortably afford to acquire San Diego and fund it through production. With Ag over $43/oz, dozens of groups could/should care.

In my view, McKenzie & the board could probably farm out 60-75% of San Diego for a sizable cash payment plus get free-carried through commercial production.

I have no idea if the board is contemplating such a move. One thing’s for sure, having avoided taking on a partner has paid off, as prospective terms are only getting better. As many commentators like to point out, primary-Ag producers are a rare bread.

Companies like Coeur Mining & Pan American Silver used to get over 50% of revenue from Ag. In the latest quarter, Pan American received 73% from Au, and Coeur 67%. By contrast, ~55% of SD’s in-situ value (at spot) comes from Ag.

Look at market darling Discovery Silver, not included in the comp table because it’s well more advanced at BFS-stage. It has an extraordinarily large (> 1.3B Ag Eq. oz) resource in Mexico.

Even though the grade is low, ~50 g/t Au Eq., the stock is ~600% in the past year! Assuming Discovery’s Cordero primary Ag project accounts for 50% of the Company’s valuation, Cordero’s ounces are valued at ~C$1.50 each.

To reiterate, San Diego has ~210M Ag Eq. ounces (net of recoveries). This is a scarce & valuable asset that will not be ignored forever.

If one believes management can get LP up-and-running next year, with a full year of production at 3.0M oz/yr (possibly more) in 2027, investors at C$0.22/shr. essentially get San Diego for free.

Ag is +46% year-to-date. Silver Storm has considerable execution risk, but now could be an excellent time (in a notable Ag bull market!) to take on higher-risk to gain exposure to promising development plays.