SCZ: Strong Q4 Production Results; Big Year Ahead in 2025
What you need to know:• Santacruz reported its Q4/24 production results, that beat our estimates and its Q3/24 results.
• We expect continued optimization and improved efficiencies at its Bolivian assets in 2025.
• We recently initiated coverage on SCZ, read the report here.
• SCZ is trading at just 2.0x 2025E CF compared to small/mid-cap silver producers at 7.2x.
This morning, Santacruz Silver Mining Ltd. (SCZ:TSXV) announced its Q4/24 production results from its operating mines and San Lucas ore sourcing business. The operations beat our estimates with total silver equivalent ounces produced of 4.71Moz AgEq in the quarter which compares to Q3 production of 4.64Moz and our estimate of 4.50Moz. Today’s results impress us as the Company continues to optimize its four mines and take advantage of the elevated silver and zinc prices. We expect strong Q4 financial results to be reported in the coming months. We are maintaining our BUY rating and our target price of C$0.90/share on SCZ.
Today’s results highlight the importance of being a multi-asset producer with some assets missing expectations and others outperforming. We are particularly impressed with SCZ’s Zimápan Mine, which beat our estimates of silver equivalent produced by ~10% (producing 1.1Moz AgEq) and continues its stellar track record of consistent production. Additionally, the three Bolivian operations ramped processed tonnes which offset a slight drop in silver head grades. The San Lucas ore sourcing business continues to prove its value in utilizing extra capacity at the processing plants from the three operating mines.
Investment Thesis Rehash
We initiated research coverage on SCZ on January 21st (initiation report here). Our investment thesis covers several notable remarks on why we believe SCZ is deeply undervalued. In summary, SCZ’s operation of four, multi-metal assets, offers a more diversified and lower-risk investment opportunity compared to single-asset/single-metal peers. Its recent renegotiation of the Glencore transaction has unburdened the Company from a debt perspective and removed all royalties on the properties. Net debt decreased from $176M in Q4/23 to $46M in Q3/24 or 0.6x Net Debt/OCF. Lastly, SCZ has a 1.4x beta to the silver price, making it an ideal investment for those looking to take advantage of a rising silver price.
Santacruz currently trades at 0.2x NAV and 2.0x 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.
Santacruz Silver Mining is engaged in the operation, acquisition, exploration and development of mineral properties in Mexico, with a primary focus on silver, but also including gold, zinc and lead. Co. is focused on meeting and maintaining its primary production objective of producing approximately 1.5 million silver equivalent ounces on a yearly basis at its producing property, the Rosario Mine. In addition, Co. is exploring three other mineral properties, being the San Felipe Project (an advanced stage project), the Gavilanes Project (an exploration project), and the El Gachi Property (an early stage exploration project).
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