Minefinders (MFN) is a gold and silver miner with 3 sites in Northern Mexico. Currently, they mine from the Dolores location, which contains 2.02 million ounces of gold and 114.52 million ounces of silver, Proven & Probable. In addition, they have 316,000 ounces of gold and 4,500,000 ounces of silver Proven & Probable at a second site, La Bolsa. Minefinders has found high grams per ton measurements in their drilling program at their third site, La Virginia.
The company is headed by an excellent management team with proven mining experience, and it shows in their production results. While a temporary slowdown in the leaching process occurred in 2011, the company has increased silver ounces mined substantially and increased sales of gold and silver ounces substantially this year.
The increased production has led to strong sales growth based off of just the Dolores mine. In addition to the current leaching process at Dolores, the company is considering a local mill that would improve gold recovery rates to 90% and increase profitability per ounce. The company is projecting La Bolsa to come on strong in 2013 and has a target of 300,000 ounces (gold and gold equivalent silver) by 2015.
The company has lowered cost per ounces of gold to $450 – $500 based upon the increase in silver mining as an offset. In other words, the silver mined is used to reduce gold mining costs so the company can quote a ‘gold equivalent’ cost of production. This shouldn’t mislead investors into worrying about the differences in gold and silver costs used in production as long as the prices obtained in the spot market are higher than the reference numbers used in Minefinder’s calculations, which they should continue to be in the near future. Mining companies typically reduce cost for production to their main product and as long as the assumptions for this case are known, then investors have little to worry about in transparency of reported cost numbers.
The company has 221 million in cash and not much debt and should have solid cashflow moving forward. Minefinders is currently considering underground mining at Dolores to increase production.
Based upon P&P reserves, cost per ounce and recovery rates, current spot price, cash and expected CAPEX, I am putting a price target of $25 per share. The company is currently trading at $13.33 and I expect in the next couple of years that investors will value the company as per proven assets. In addition, as a bonus not figured into my price target, I expect the spot prices of gold and silver to rise significantly in the next few years, which will increase Minefinders operating margins, profits, and therefore share price.
