Interview with Darren Blasutti, CEO of Americas Silver Corporation (TSX: USA; NYSE "MKT": USAS): Positioned to Become One of the Lowest Cost Silver Producers in 2018
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
on 7/7/2017
Americas Silver Corporation (TSX: USA; NYSE "MKT": USAS) is a leading Canadian-based junior silver
producer, with assets in the Americas and a strong operating platform. The company owns and operates the
Cosalá Operations in Sinaloa, Mexico and the Galena Complex in Idaho, USA. A third mine is in
construction in Mexico, and an advanced stage exploration project. We learned from Darren Blasutti, who
is CEO of Americas Silver, that their new mine comes on in the fourth quarter of this year, which will
dramatically decrease their all-in silver cost for 2018. According to Mr. Blasutti, the company's vision
is to be leveraged fully to the silver price, owning 100% of their properties, and having no third party
royalties. With the market turnaround, Mr. Blasutti believes Americas Silver can develop some real
momentum and growth around their asset base. Annual production for 2017 is expected to be 5.5-6.0 million
silver equivalent ounces.
Americas Silver Corporation
Dr Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Darren
Blasutti, President & Chief Executive Officer of Americas Silver Corporation. Could you give our
readers/investors an overview of your company?
Mr. Darren Blasutti: We are a silver producer. We have two mines, one in the United States in
the Silver Valley, about seven miles from Hecla's Lucky Friday project, and that is the Galena Complex.
We're also in Mexico, in Sinaloa state, near Mazatlán, on a property we call our Cosalá operations. Those
two mines produce around 2- 2.5 million ounces of silver. They have some zinc, lead and copper by-product
credits that are also produced. In 2017, we expect to produce roughly two and half million ounces, about
$9 -$10 dollars all-in cost, for silver. We expect that that cost number will decrease dramatically in
2018, as our new mine comes on in the fourth quarter this year. It is in Mexico and it is called San
Rafael.
So that's a quick overview, Al, of the company. We are fully leveraged to the silver price. We have no
hedging; we have 100% of our properties owned, and we have no third party royalties. We of course have
the Mexican royalty tax, in Mexico. But we effectively have full leverage to the commodities, which we
have in our resource base. The overall resource base is about 120 million ounces of silver, about 32
million of which are reserves, 55 or so in Measured and Indicated resources, and the remainder in
Inferred. We have about a billion pounds of lead in our reserve and resource, and about 700 million
pounds of zinc. So we do have fairly big reserves and resources. In the future we plan to exploit more,
to increase our production from our own mine sites.
Dr Allen Alper: That's amazing, you have really very large resources, and I've noticed you're
doing excellent work lowering your costs. Could you tell our investors/readers a bit about that?
Mr. Darren Blasutti: We acquired two companies as a management team and board, because we saw
the value of the large resource base, but they had very high costs. Our view was neither of those
companies had been operated very efficiently. In 2012 we bought a company called US Silver, it was
producing at about $33 dollars an ounce in September 2012 when we acquired it. We understood they were
mining high grade silver tons, but the productivity of those tons was not very good. They were chasing
very narrow veins, 18 inches to three feet wide, with very expensive mining methods; i.e. conventional
mining methods, high cost labor, with low productivity.
The mine at that time, in 2012, was producing silver and a little bit of copper ore. We
identified in our review of the company before we bought it, that there was some really good silver lead
ore that could be mined more cheaply, because it was seven to 30 feet wide instead of 18 inches to three
feet wide, and that would allow us to reduce the work force. Silver was declining quite rapidly and the
company was still at $30 costs. We came in and changed the mining method from silver copper and
conventional, labor intensive mining, to more bulk mechanized mining and were able to reduce the work
force by 45%. Given that the stopes were much bigger, and therefore could have bulk mining attached, we
managed to lower our costs from about $300 per tonne then to about $140 per tonne today.
So that's been the dramatic changeover. Also the value per tonne of the rock that we have been mining is
higher because it is effectively higher grade, when you include the lead. The silver was on its own
before. So we went from about mining 12 ounce silver, with about 0.3 or 0.4% copper in it, to mining
about 7-8 ounce silver with 7 to 8% lead in it. So roughly 15 ounce equivalent rock, mined at much wider
areas, allowed us to reduce the work force and increase productivity. That was our strategy.
In Mexico, the mines were operating well from a labor standpoint, but they were operating silver
mines that weren't making any money. So we shut the El Cajón property down when we got about a month into
taking over Scorpio Mining, in 2014. We shut down the mine despite the fact it had just been built. We
re-explored the Nuestra Senora mine they were operating that had higher margins. We managed to increase
the mine life by a couple of years there, through exploration drilling, and that has done very well for
us. The costs were about 24 dollars in 2014, last year they were about $8.50 dollars per ounce. They're
going to about $2- $3 dollars an ounce this year.
Then of course our new mine, San Rafael. The Mexican Company, which was Scorpio Mining, the Cosalá
operations, had a development project called San Rafael, and San Rafael is really the future of our
company. It was slated to be an open pit mine, with a capital cost north of $200 million. We turned it
into lower tonnage, but higher grade for about $18 million, which raised the return from around 10% to
north of 100%, on a post-tax and unlevered basis. That mine will start producing in the fourth quarter.
Its costs will be negative $10 dollars an ounce, all-in costs at current metal prices, because it has
very good zinc, high grade zinc, and high grade lead.
We’ve moved the company from $30 down per ounce costs to $10 this year, as a result of shutting mines,
reducing cost, and increasing productivity, and then bringing the new mine on next year will make a step
change down in our cost base, as we bring on this additional lead and zinc, while maintaining and
slightly growing our silver production.
Dr Allen Alper: Well, that's an amazing job. I'm very impressed with the work your team has done.
Mr. Darren Blasutti: Well it's never fun to have to let people go, Al, that's the hard part of
the business. As you know, having been in the industry for a long time now, you go after tons because the
metal prices are high, you hire people, and the people you hire, you're training and they're not as good
as the workers you already have, and then you get those incremental miners into incremental stopes, and
your costs just snowball into being much higher. So we've now reset our company, on a cost basis. We're
trying to grow our silver production now. But at $17 it's hard to make money for a lot of the guys in the
industry. So we're looking at how we can increase our silver production without increasing our cost base
back up again. That's the real trick.
We're taking these really smart guys, who spent the last four or five years reducing costs,
finding better productivity in the mines, and cutting them loose on mine planning to increase our silver
production. We'd like to get from about two and a half million ounces to four or five million ounces by
2020, from our asset base. That's really the goal of the company. We think at a minimum we should be
making $10 an ounce on our silver. If we're not, when you think about the cost to acquire properties,
drill, permit, and build mines, I don't know how you make a return for your shareholders if you get less.
We have this big asset base of 120 million ounces of silver. Instead of having a 55 or 60 year implied
mine life, we'd like to have a 20 year life. That means increasing production. But we don’t want to
increase silver production based on a hope that the silver price will go up this year. We want to do it
at current prices and make money at current prices, and be ready for when the higher prices return. So
we’ve reduced our silver production and increased our base metal production. That's something we had to
do, not something we wanted to do this year.
Lead and zinc are at historically high prices so we are producing more lead and zinc. We will
accumulate cash on the balance sheet and be ready for when silver prices recover, so that we can be
producing that much more silver. We won't have to buy a new company to increase our production. We can do
it from our asset base, and that's really the strategy of the company as we go forward.
Dr Allen Alper: Well that's very good. It sounds like a very sound strategy, and you’re executing
it very well. It sounds like you're very competitive, versus your peers. Could you tell our
readers/investors more about that?
Mr. Darren Blasutti: Neither of the companies we acquired were well run at the time and were
very high cost producers. Investors, shareholders have been impressed with our cost reduction, down to
$9- $10 this year, which in our peer group is the lowest cost. You'll see from our presentation, and
going forward, we will fall to one of the lowest all-in cost producer next year in the entire silver
industry. We trade at very low multiples compared to our peer group. So despite the fact that we have the
most leverage to silver production, and silver resources, despite the fact that we have our costs
lowered, and we're going to be the lowest cost in the industry, we trade at very low multiples compared
to our peer group.
But, now we’ve started marketing the company, letting people know what we’re doing, about the
turnaround. We are continuing to fix our mines internally, and now we're out a little bit behind the
eight ball, working on catching up with the really well-known silver names like Great Panther, First
Majestic, and Hecla. People have not really heard of Americas Silver, so we are out marketing.
We went on the New York Stock Exchange this year, in mid to late January, so now you can buy
Americas Silver Corporation (TSX: USA; NYSE "MKT": USAS) on the New York Stock Exchange, in the MKT
market, or an MKT platform. We're working hard to making it more available. We're about 58%
institutionally owned, we're about 38% to 40% retail owned, a lot of that is Canadian retail, familiar
with the management team and board. But we expect to make penetration into the US retail base because we
have a US asset.
I think a lot of people are waiting for this new mine to come on, in the fourth quarter, because
it's such a company builder. I think we are going to get a re-rate as we get closer to that mine date,
and our costs continue to drop. We expect our second quarter to be a very good quarter for the company as
far as earnings and cash flow and low costs. We expect to pick up some ground from our competitors.
We expect Galena, which was producing at $30, to produce at $12 or $13. Scorpio that was at $24 can
produce at $3 this year. We have institutional shareholders and we’re getting the word out to the rest of
the market. We've been marketing all over the US. We performed pretty well in 2017, compared to our
peers, but we've got a long way to go to catch up with where we should be trading.
At the new project: The reason the capital cost is so low at $18 million is because it's an
underground mine and we already have an existing mill facility. The commissioning and the ramp-up that
people normally worry about with new projects, is not there for us. Because the mill has been operating
these kinds of products since 2008. Of that $18 million, about $14 million is development capital. So
this thing, when it comes up in the fourth quarter, will change our Mexican operations. It will allow us
to reinvest some dollars into exploration, which we haven't been able to do. Companies in the industry
have not been spent exploration dollars because nobody's had any money.
We're very high on the exploration potential of our properties, especially in Mexico. There’re a
lot of discovered resources and reserves in Galena, which can come on from existing stopes at higher
prices, but Mexico's really in the forefront of discovery for us. We think we have multiple mine
scenarios there, potentially as many as three or four mines that could be operating at better prices. Our
exploration dollars, put on the balance sheet from our new project, will allow us to exploit those things
in the next couple of years, so we're very excited about that.
Dr Allen Alper: Sounds very exciting! Could you tell me a little bit about your background, your
team, and your board?
Mr. Darren Blasutti: The majority of the management team, four of the five guys, are actually
ex-Barrick. We call it Pre-Equinox Post-Barrick. We were gone before the bad era, 2010-11 for Barrick. I
was the head of corporate development at Barrick. I took a team of young guys, experienced in big
companies, who understood the importance of safety, proper organization and disclosure to the market, and
all those kinds of things, from a very professional level.
In the last five years we had to work in a serious downturn in the mining industry. That
experience, coupled with our Barrick experience, really gives us a lot of confidence. Not many people can
say they took the two highest cost silver producers in the world and made them into the lowest cost miner
in the world. So we've had a lot of experience, maybe more experience than we wanted, quite frankly, last
five years, it's been a very difficult period. But it's been a very good learning period for our board
and management.
I'm a chartered accountant, but I was the kind of guy, who was sent around the world at Barrick, with all
the mining engineers and geologists, to look and acquire properties everywhere. So I certainly have a
good understanding of how to look at properties that are out of the money, or undervalued, figure out how
to pick them up cheaply and turn them into valuable resources. So that experience is what we put in play
when the silver price went to $13 from $35. We worked it out and came out of it as a better company.
We've come out of it stronger. As a management team, we're highly educated professional engineers,
chartered accountants, with good technical expertise from the Barrick training. Additionally we have our
own, on the ground training, for dealing with junior assets, smaller assets and capital markets
experience. We are prepared to move forward in the future. We can look at exciting, big opportunities. We
can also look at things which are undervalued and come in and fix them.
We hired a lawyer, unusual for a company our size, who was a really high performer at Weil Gotshal in New
York, which is a big M&A firm there. The Chairman of our board was head of exploration at Barrick. We
have two mine builders in Peter Hawley and Alan Edwards on our board. Alan notably was with Phelps Dodge,
and was the head of technical services there. So we have a very strong technical base on our board. Peter
Hawley was the founder of Scorpio Mining, and was very good at finding assets and getting them built.
Then we have a nice mix of legal, accounting and capital markets experience to ensure that the regulatory
and disclosures etc. are well taken care of, and that I can lean on as a manager. So as a small company
we have a very experienced board. I think our next venture is to find a great Mexican director to add to
the company. I think that's where we need more experience. We think there's a lot of growth for us in
Mexico. We’re always trying to make our Company better.
I think it's very attractive that we have a very tight capital structure. We only have 40
million shares outstanding, on a basic basis, and about 49 million when you include options and warrants.
The warrants are to Eric Sprott, and to a shareholder group called CQS, and they're long-term holders of
the stock. As we show our low costs and bring the new mine into play, there are going to be very few
shares to acquire, because we don't have a big float. We think that bodes well for the stock price as we
deliver on the results. The capital structure of our company is very attractive.
We have $15 million of long-term debt. We have about $26 million of working capital today. We're
going to build our new project, which we expect will generate over $2 million of cash flow a month. We're
going to use that cash to reinvest into our projects so that our numbers on a per-share basis continue to
skyrocket. That's the strategy of the company. Investors in Americas Silver are getting a proven
management team that executed a four year turnaround.
We've not only reduced our own costs about 70-75%, we've increased our silver reserves and our resources.
We went from having no mine plan at either of those two mines, to a 10 year mine plan at current prices.
We have a lot of production ahead of us at this two and a half million ounce mark. We're focused on
getting to a four or five million ounce mark, on a silver production basis. Of course next year, we're
going to about seven and a half million of silver equivalent ounces. We have a lot of lead zinc exposure
there as well.
Dr Allen Alper: Very impressive team! Very impressive results! Very aggressive plans!
Mr. Darren Blasutti: It's hard to understand how bad the industry was, the last couple of
years. So we're not going to take this for granted. We're not just going to go out and make the same
mistakes everybody else made. We did two acquisitions, and paid a premium for neither. At Barrick, we
made a lot of great deals, but we always ended up paying premiums for those companies, taking our
shareholders' value and transferring it to somebody else. We want to do deals with people, attracted to
the management team, attracted to what we can do, who want to put their assets into us because they know
we can do better for them.
We're not just going to take the 40 million shares for granted. We're going to work very hard to
find assets that we can buy cheaply. Or strategy number one is to get more out of the big asset and
resource base that we have. That has been a real change in the company. For four years we've been
thinking about nothing but cutting costs. Now we're happy to be in a more exciting place, where we can
develop some real momentum and growth around our own asset base for the shareholders.
Dr Allen Alper: What are the primary reasons our high-net-worth readers/investors should consider
investing in Americas Silver Corporation?
Mr. Darren Blasutti: We have a very big resource base that we believe can do a lot more than
it's currently doing. We have a small number of shares, so when our prices go up, we will see the benefit
in the stock price. We have cash, to develop our own exploration, our own projects, without having to
raise more money. We have a proven team that has not only reduced costs by 70% over four years, but have
increased the reserves, and resources, and increased the mine lives of each of these assets, despite low
prices.
We think buying us today, is buying the lowest cost silver producer in 2018 at a discount to its peer
group; not only at a discount based on financial multiples, but with the most leverage to silver
production and the most leverage to silver in the ground, i.e. the resources that we have, based on the
charts you see on our website. So when you take that combination of management team, a big asset base
that is untapped, cash flow we'll be generating with the new mine, and going forward, our ability to
extract value from that base, without having to raise equity. That's our advantage.
To do something, in this market, most others have to raise money. They have to go out and issue
stock, to either buy things or keep their production flat. In order to grow they're going to go out and
acquire companies. We don't need to do either of those things. We intend to get our silver production
from two and a half million ounces to four or five without issuing a single share. That's how we think
about our company, and we think we can achieve that. Now it's going to take a few years, but in the
interim we're going to be generating lots of cash on the balance sheet, and that's going to fund our
growth. So I think that's what differentiates us from anyone else in the silver sector today.
Dr Allen Alper: Excellent!
http://www.americassilvercorp.com/
Darren Blasutti
President and CEO
416-848-9503
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