American Silver Mining Company
This is a private webpage and has no affiliation with the American Silver Mining Company
Last update: March 19, 2004
For those of you who have tried to find out information about ASLM, you have probably found out that info is virtually nonexistent on the web. I am an ASLM investor, and am posting my own info (the best that I have) for the benefit of those of you who have made frustrated attempts to find something out.
Happy investing... I own the stock, and obviously want to see it go up in price. Consequently, I make no claim to be objective. While this info is the best that I have been able to obtain for my own purposes, I do not guarantee its accuracy. (Even the two maps I am including differ a little, but that is the info that I have... cannot be helped). A lot of what I have written here is my own opinion or interpretation. I offer it freely, but ask the reader to do their own due diligence and NOT to construe this information as a stock recommendation. You are responsible for your own investment decisions. I have also included these resources for your convenience:
Home
Claims map of the Silver Valley
Silver Valley companies and links
Location and Information:
American Silver Mining (Idaho Corporation, est. 1924)
2503 E 17th Ave., Spokane, WA 99223-5124
President: Wafford Conrad
American Silver Mining is sitting on 21 unpatented lode mining claims (about 320 acres) on a key piece of strategic property that now lies directly between two operations - Sterling Mining (Sunshine Mine) to the Northwest and Coeur D'Alene Inc (Galena and Coeur Mines) to the Southeast. The map shows the location of the property.
In the Silver Valley there is a NW-SE trending vein system, roughly following the direction of faulting and shearing in the area. Major faults are shown on the map as red lines. Historical underground mines are shown on the map as red dots. The two red dots north and east of the American Silver property correspond to the Coeur Mine, owned by Coeur D'Alene Mining.
The main silver occurrences in the valley are found at ~3000-5500 feet depth in a geological unit called the Revett formation. The silver-bearing vein system is actually quite predictable and continuous throughout the valley. It does not take a genius to see that the dots corresponding to the historical mines form a line that passes right through the American Silver Mining property. American Silver has held the property since 1924 (!!) without doing anything with the claims, making this block one of the most unusual and strategically located pieces of "virgin" ground in the whole valley.
I have no idea how much silver has been quantitatively defined so far on the ASLM property. Most of the historical exploration has been done by the Silver Valley Resources consortium (now owned by Coeur D'Alene mining). They spent about $3 million on the property in the form of ore definition, and confirmed that the vein system in actual fact does pass through the ASLM ground. The exploration investment alone is worth almost the entire market capitalization of ASLM (~2.7M shares @ $1.70 at the time of writing). One might expect a LOT of silver. The Sunshine mine (Sterling Mining, to the Northwest) has produced 350 million oz. in its lifetime, has current ore reserves of 27 million oz., and indicated (?) ore of 160 million oz. The Coeur D'Alene properties have current reserves of only 22 million oz., but this is more due to a lack of exploration drilling than anything else. The Coeur and Galena mines, when operational, had a combined production of about 11 million oz/year, and have produced for decades. American Silver is the same type of property, on the same strike, and may be anticipated to have the same magnitude of resources.
In 1997 Coeur D'Alene and ASLM signed a production sharing agreement, valid for 20 years. In fact, CDE has a drift going right into the ASLM property from the Coeur mine at the 3400 foot level, making this cheap ground to access (see second map). Another interesting feature of the claim block (see first map) is that Coeur D'Alene needs to go through the ASLM property to access the southern portion of their own property.
The production sharing contract between ASLM and CDE gives CDE sole and exclusive possession and control of the ASLM property. As part of the agreement CDE is obliged to spend $100K on the property each five years. If CDE goes into the ASLM property there is a 20% net profit royalty (NPR) up to a price of $11.00/oz of silver. Beyond this, the royalty increases linearly to 40% over the price range $11-16 per oz. Coeur also has agreed to pay ASLM an 11% NPR on Coeur's own claims south of ASLM if CDE goes through ASLM's property to access their own southern claim block.
Possible Scenarios:
The current bull market in silver presents unique strategic opportunities. Unlike the "blip" of the 80's that came and went before companies could fully profit from it, it looks now that we are going into a long-term structural bull market for silver. Thus, it is likely that we will see production options exercised, and buyout offers suddenly materializing. I can see two possible end-game scenarios for ASLM:
1. CDE exercises production rights, thereby generating royalties for ASLM.
2. CDE moves to acquire ASLM outright by means of a stock-swap deal. This could involve a possible counter-offer by Sterling Mining (SRLM).
Reopening the Coeur Mine
Coeur has publicly stated their intention to re-open the Coeur mine contingent upon their ability to add enough reserves to the mine by exploration drilling. I see this re-opening as a foregone conclusion in a significant silver bull market. The limiting factor in underground production is almost always the capacity to lift ore through the shaft; therefore, one cannot simply increase production from the existing Galena mine. Any production increase in the area will need to be accomplished by putting new shafts in service. Developing a new mine shaft is VASTLY capital intensive. To replace one of the existing shafts you would need to invest about $80 million, and that is before you install services, develop drifts (horizontal access tunnels), and the like. What this means is that you ALWAYS use existing shafts, even if you have to drift quite a horizontal distance to get at the ore you want.
Coeur D'Alene mining is committed to reducing per-ounce production costs from the Silver Valley area. There are a number of ways in which this can be done. Since the lion's share of the cost is the mining cost, mine productivity (ounces per day or ounces per man shift) is the critical factor in determining overall production cost. This, in turn, is affected to a large extent by the head grade (ounces of silver per ton of ore) and the cycle time (how long it takes to complete one blast - extract - lift cycle). This is why I believe that the use of leased ore reserves is inevitable. First of all, one can book reserves much more quickly if one has access to a 360 degree radius around the mine shaft, rather than just exploring toward the CDE claims. Secondly, cycle times are shorter if you mine closer to the shaft and/or closer to the surface, rather than chasing deeper and less accessible ore from the already-worked Coeur property. Thirdly, head grades will be higher in virgin property than from property that has already been the subject of intense exploration and mining activity.
The benefits of entering ASLM property are, of course, offset in part by the royalty payment accrued to ASLM. However, (and this is critical from an accounting point of view) the royalty is structured on a percentage-of-profit basis, meaning that it comes off the top of the balance sheet (as a revenue deduction) rather than being added to the bottom of the balance sheet (as a cost). In other words, the royalty does not constitute a part of the operating cost. Going into leased ore reduces the operating cost, irrespective of the royalty payment.
ASLM Valuation (based on CDE smelter royalty):
Some typical numbers for adjacent mines - the Coeur mine in 1996 was recovering about 18 oz. of silver per ton mined. The Sunshine Mine (Sterling Mining, to the west) was recovering about 21 oz per ton. Let's say then, for the sake of argument, that ASLM ore produces about 20 oz/ton. This would be low for virgin territory. The head grades at Sunshine and Coeur are both lower at present due to decades of mine depletion.
If CDE did decide to reopen Coeur and move into the ASLM property, it would probably soon account for more than 50% of the ore coming out of the Coeur mine. This mine was historically operating at ~780 tons per day. Consequently one can approximate (780 tpd * 50% * 20 oz/t = 7,800 oz/d) from ASLM territory, or 2.9 million oz Ag per year, or 1.07 oz Ag per ASLM share.
The royalty payable to ASLM depends upon CDE's cost of production. At a cash cost of production of $4/oz (that which CDE is advertising as their target for the Silver Valley area) an approximate calculation of the royalty payable to ASLM is presented in the following Figure. (This assumes royalties paid on 1.07 oz Ag per share at a cash cost of production of $4/oz). The royalties would be higher if CDE were to increase production rates from Coeur, or if they chased high-grade silver wire resources from the ASLM property (> 20 oz/t), or if they obtained more than 50% of their ore from the ASLM claims.
The share price supported by the royalty is a function of the price-to-earnings ratio of the stock. In the precious metals sector the P/E ratios tend to be quite high, averaging about 25-30. If we were to calculate the share price based upon an extremely modest P/E of 15, one obtains the following:
Disclaimer: The above calculations are presented for illustrative purposes only, and should not be construed as a performance guarantee. Many factors can influence royalty revenues and share price. These are order-of-magnitude expectations based upon the assumptions stated above.
Summary:
Seeing how the ASLM property is right next to the Coeur mine shafts, it is a reasonable bet that it will represent for CDE some of the cheapest and fastest silver in the Silver Valley. In a recent webcast CDE's chief operating officer stated that there were "no specific plans" to enter the ASLM property but that an "agreement was in place" and that the ASLM property was viewed as "prospective ground". The fact that the Chief Operating Officer recited this instantly in response to a completely impromptu question suggests to me that the ASLM property is already under active scrutiny by CDE.
So.... a virgin property, with two CDE mine shafts right on the borders, confirmed mineralization, and a drift already going into the property. Virtually no capital cost to get at the ore, a royalty agreement already signed, a bull market for silver, and CDE now sitting on 250 million cash with commitments to keep operating in the Silver Valley; and if CDE does go into the ASLM claims, which it seems almost impossible for them NOT to do, the smelter royalty for ASLM will support a share price many multiples of the current trading price. This is why I am so bullish on this particular stock.
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