FREE

SCZ: A Mispriced Multi-Asset Silver Producer

What you need to know:
• Santacruz is a multi-asset Canadian mining company focused on silver with assets in Latin America.
• In April, the Company refinanced its debt with Glencore, reducing net debt from $176M in Q4/23 to $46M in Q3/24.
• SCZ is now printing cash, generating $30M in OCF in Q3 and is on pace to generate $79M in 2024E.
• SCZ is trading at just 1.9x 2025E CF compared to small/mid-cap silver producers at 7.2x.

Santacruz Silver Mining Ltd. (SCZ:TSXV, SCZMF:OTC) is a Canadian mining company focused on the operation, development, and exploration of mineral properties in Latin America. Santacruz is operating four mines in two countries (Bolivia & Mexico) following an acquisition of three mines and an ore sourcing Company from Glencore in 2022. Since the acquisition, the Company has executed well, integrating the three mines and ore sourcing business into the Company. Santacruz’s ore sourcing and trading business fills excess capacity at its Bolivian processing plants, providing additional revenue. SCZ is led by a strong management team and board of directors and trades at a large discount to its peers. We are initiating coverage on Santacruz Silver with a BUY rating and a target price of C$0.90/share.

Investment Thesis Summary
Multi-Asset & Multi-Metal Mining Company Reduces Single-Asset Risk. Santacruz’s operation of four, multi-metal assets, offers a more diversified and lower-risk investment opportunity compared to single-asset/single-metal producers.

Acquisition Digested & Turnaround Complete. Since the acquisition and refinancing of the three operations in 2022 from Glencore, the Company has invested and optimized these operations with the majority of the capex completed, setting up SCZ to generate large cash flow over the next several years.

Ore Sourcing and Trading Business Promotes Efficiency. The San Lucas Ore Sourcing and Trading business utilizes excess processing capacity at SCZ’s three Bolivian plants (Bolivar, Porco, and Don Diego), whereby the plants produce zinc and lead concentrates, providing a responsible processing option for local mining groups and an additional cash flow opportunity for Santacruz.

Cleaned Up Balance Sheet. In April, SCZ renegotiated its debt with Glencore, reducing the payments to $10M annually over eight years (previously $22.5M annually over four years) as well as removing all royalties on the property. As such, net debt decreased from $176M in Q4/23 to $46M in Q3/24 or 0.6x Net Debt/OCF.

Leverage to the Silver Price. SCZ has exhibited a 1.4x beta to the silver price over the last three years and a 1.5x beta over the LTM due to its previous large debt balance, making it an ideal investment for those looking to take advantage of a rising silver price.

Significant Discount to Peers. Santacruz currently trades at 0.2x NAV and 1.9x 2025E OCF compared to its peers at 0.6x NAV and 7.2x 2024E OCF. We expect this valuation gap to narrow as SCZ further improves its costs and balance sheet.