Andean chases $20m for Chilean silver drilling

$135 million capped Andean Silver launches $20m placement at ~10% discount to fund exploration at Cerro Bayo
Chilean silver and gold asset has sent explorer’s shares 350% higher YTD
Citi bullish Chinese retail investors could provided further upside for silver, while Canaccord says M&A interest in the sector is growing

Chilean silver and gold explorer Andean Silver (ASX:ASL) is off to the races chasing $20 million in a placement at $1.05 a pop.

A 10.3% discount to the $135 million company’s last close of $1.17 a share, the placement actually comes in at a small premium to its five-day, 10-day and 15-day VWAPs, according to a term sheet sent to potential backers.

ASL entered a trading halt around 9am this morning to conduct the raising.

Citi sees silver upside

Silver prices have shot up around 30% this year, hitting multi-year highs of ~US$31/oz.

That’s been driven by silver’s use in industrial applications like solar panels, something driving large deficits for the precious metal.

But it is also moving in lockstep with gold as investors anticipate the start of a rate cutting cycle. That’s good for non-yielding precious metals which become more competitive against cash as interest rates decline.

According to research from investment bank Citi, part of the pitch to Andean investors, retail investors in China also present “a very substantial upside risk” in the coming months.

Bar and coin buying from Chinese silver retail customers has stepped up in recent months from an average of 1Moz to 3.5Moz in July.

“If China shifts to buying silver at 1/10th of the value of the recent reported gold import pace of $3.9bn per month (in June and July), we estimate that would equate to an annualised pace of 156Moz or around 20% of mine supply and 13% of total consumption,” Citi said.

“For context, we are assuming 30Moz of ETF buying this year, and 70Moz next year owing to the Fed cutting cycle.

At gold buying rates seen in the first five months of the year, purchases equating to 1/10th of the value of gold imports would equate to 40% of consumption or 56% of mine supply, Citi says.

It thinks silver can hit US$35/oz by the end of 2024, with US$38/oz in sight over the next 6-12 months.

Cerro Buy-o

Andean, aligned with the Richardson Street Group stable of non-exec chair and former Bellevue Gold (ASX:BGL) chair Ray Shorrocks, is up 350% YTD.

Its Cerro Bayo project hosts indicate and inferred mineral resources of 8.3Mt at 342g/t silver equivalent for 91Moz of contained silver metal equivalent.

Canaccord Genuity and Euroz Hartleys are on the ticket, with bids due 5pm in Sydney for Aussie investors and 6am for the rest of the world.

ASL had $10.1m in the bank as of June 30, but plans to restock to double its drill rigs on the ground to four, targeting resource growth, conversion and both brownfields and greenfields exploration.

Over 100Moz of silver equivalent production has come from the site at recoveries of between 90-92% for both gold and silver, with Andean boasting of $150m of previous investment in infrastructure by precious owners with over 50km of underground decline including exploration platforms already installed.

Around 75Moz of the silver equivalent Cerro Bayo resource is in higher grade underground ounces.

Canaccord has a spec buy rating on ASL with a $2.50 price target, saying a resource update is due early in the March quarter, which could trigger takeover appeal from overseas if the resource expands beyond 100Moz silver equivalent, analyst Tom Prendiville mused in a note.

Silver M&A has recently popped up in the Canadian market, as evidenced by First Majestic Silver’s announced acquisition of Gatos Silver this month.