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Sunshine Silver Mining Goes Public, But Struggles to Profit

Sunshine Silver Mining Goes Public, But Struggles to Profit

by Justin Dove, Investment U Research
Wednesday, July 13, 2011

Sunshine Silver Mining Corp. (NYSE: AGS) announced Thursday that it plans to go public and raise $250 million with its IPO.

Sunshine has been around since 2009 and has strictly been an exploration company up to this point. But, the Denver, Co.-based company hopes to cash in on two recent property acquisitions.

The Sunshine Mine in northern Idaho is historically one of the largest producers of silver in the world. It is said to have produced 360 million ounces of silver since it was found in 1884. A report by Behre Dolbear & Company in 2007 estimated that the mine still contains “total reserves of 23.48 million ounces of silver (including a 15 percent mine recovery loss deduction) within a larger resource base containing 231.5 million ounces of silver.”

Sunshine Sliver Mine in Idaho
(Courtesy: Sunshine Silver Mining Corp.)

The second mining region Sunshine has invested in is the Cerro Los Gatos Project in Chihuahua, Mexico. This area has little history of mining and Sunshine is still in the process of exploration. Sunshine stated in its S1 IPO Filing that:

“Prior to Sunshine Silver’s initial acquisition of exploration concession rights in 2006, only very limited historical prospecting and exploration activities had been conducted at the Los Gatos Project. As a result, the Company was able to acquire concessions covering approximately 81,607 hectares and, through its exploration, has identified a virgin silver region containing high-grade vein style mineralization throughout its Los Gatos concession package.”

Sunshine Silver Mine - Cerro Los Gatos Project - in Chihuahua, Mexico
(Courtesy: Sunshine Silver Mining Corp.)

Consider These Factors Before Investing in Sunshine Silver Mining

There are some major risk factors with Sunshine. The biggest include:

  • Sunshine reported a net loss $9.1 million in the first quarter of 2011. That’s almost double versus the same period in 2010. The company has no history of successful mining and has only participated in exploration thus far. Sunshine even admits in the Risk Factors section of its S1 Filing that it “cannot provide investors with any assurance that we will generate any operating revenues at our mineral properties or ever achieve profitable operations.”
  • The two properties that Sunshine has acquired are not guaranteed to produce sufficient silver. The Sunshine mine in Idaho may be close to being depleted after more than 100 years of mining and Los Gatos may not provide the minerals that Sunshine claims it will.
  • Sunshine’s viability completely hinges on the demand and price of silver, and the company will find it very hard to be profitable if the price of silver goes down.

There are no guarantees with Sunshine Silver Mining Corp. And it’s concerning that the company is struggling to turn a profit. But if you are bullish on the future of silver, Sunshine is a company to keep your eye on.

Good investing,

Justin Dove

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