Mining is always a bit of risk versus reward game. Winning isn’t just about extracting valuable minerals from the earth, but doing so efficiently, sustainably, and profitably.
Santacruz Silver Mining Ltd (TSX-V:SCZ, OTC:SZSMF), a Vancouver-based mining company with operations in Bolivia and Mexico, is an example of how strategic leadership and a commitment to improvement can drive a mining enterprise forward. Yet despite having steady silver equivalent ounce production since Q3 2022, its shares have struggled to gain momentum over the last year, suggesting that investors are not familiar with the emerging Latin American producer.
The company’s Bolivian operations form the foundation of its mining endeavors. These operations consist of the Bolivar, Porco, and the Caballo Blanco Group, which is comprised of the Tres Amigos, Reserva, and Colquechaquita mines.
Additionally, the Soracaya exploration project, located 4.4 kilometres along strike from Pan American Silver’s San Vincente mine and part of the same mineralized system, contributes to the company's value proposition, while the Zimapan mine in Mexico adds to the company's global footprint.
A unique twist to the Santacruz story is its San Lucas business, a third-party ore-sourcing business unit that uses processing capacity at each of its three Bolivian concentrator plants to process ore that is sourced from regional suppliers. San Lucas has supply agreements with more than 900 regional suppliers and provides a responsible processing option for local mining groups.
The company's commitment to improving operational efficiency, reducing costs, and maximizing asset value is evident from its strong financial and operational performance start to the year. The first half of 2023 saw a total production of 11,213,918 silver equivalent ounces at a cash cost per ounce of $18.29. Total revenue of just over $129.2 million in the first half of 2023 highlights its ability to convert its mining efforts into tangible financial gains and adjusted EBITDA of $21.7 million indicates sustained profitability.
Those numbers are even more remarkable in light of the fact that Santacruz acquired the Bolivian operations just over a year ago.
Now, Santacruz is focused on continuing to streamline these operations. Capital projects, such as the integration ramp at the Caballo Blanco mine, which will connect the Tres Amigos to Colquechaquita underground mines, demonstrate its dedication to long-term growth and sustainability.
Maximizing assets
Santacruz Silver's executive chairman and interim CEO, Arturo Préstamo, painted a clear picture of the company's journey.
"We'll keep the same trend, the same production as we have been posting in previous quarters," he told Proactive, emphasizing the company's commitment to stability.
"We believe there is potential to upgrade our operations and are currently focusing on areas where we see opportunities for further improvement. By doing this, we aim to make processes more efficient, reduce costs, and get the most out of each of our valuable assets."
Many of these changes and improvements won’t be reflected on the balance sheet until next year, Préstamo noted. And numbers like an over 300% increase in adjusted EBITDA from Q4 2022 to Q1 2023 might be the exception rather than the rule, he acknowledged. But that doesn’t bother the chairman – Santacruz is in it for the long haul.
“Our main goal is to confirm the steadiness of the company and solidify our operations,” Préstamo said. “This is a confirmation that the transition is on its way. By next year, we will be starting the year with a very strong company and trying to take advantage of metal prices – I think we’ll start to see a more positive trend in (silver) prices.”
Looking forward
Santacruz sports a healthy mix of assets: good head grades from Bolivia counterbalanced by wider deposits in Mexico. Going forward, the company will focus on consolidating its Bolivian assets and optimizing operations and efficiencies at its Mexican operations. “We think we have a very strong production profile – revenue-wise as well – so we don’t need to grow through acquisitions or something other than organic growth,” Préstamo said. “Eventually we will look at other alternatives, but for now our focus is on making our assets run efficiently and profitably.”
The team will be keeping their heads down and focused on objectives within their control. What they can’t control is the Bolivian economic situation, which is facing a shortage of American dollars and the collapse of the country’s gas industry.
The silver lining? Foreign investment from the likes of Santacruz will help. The country still has a regulatory framework for mining that is very straightforward for current operators such as Santacruz, who, with the majority of their costs in Bolivian pesos but revenue in dollars, maintain a strategic advantage as exporters.
Préstamo's close relationship with the Bolivian authorities further reinforces the company's stability. “I personally have meetings with different authorities (in Bolivia) on a regular basis and in the tone has not changed at all,” he said. “They will, and are, taking care of foreign investors.”
As the second largest mining company in Bolivia, it is important that the Santacruz team in Bolivia is staffed with Bolivian nationals, including management.
“I learn from our team on a daily basis, and that’s very important to me,” Préstamo explained. “I’m very excited for our future, and our people and the assets that we have give me confidence that we can reach our goals.”