Great Panther Resources (TSX: GPR): A Growth Story
Baby Bulls
October 14, 2009
We first met with Great Panther Resources Limited (TSX: GPR) in March 2008 at the Prospectors and Developers Association of Canada ("PDAC") International Trade Show & Investors Exchange. Our interest in Great Panther at the time was based in large part on the Company's Topia Mine in Durango, Mexico and its Guanajuato Mines in Guanajuato, Mexico, from which the Company had reported six out of eight successive increases in quarterly production since early 2006.
Fast forward to PDAC 2009. We again had the opportunity to spend some time one-on-one with Bob Archer, President of Great Panther Resources. We were comfortable with the story and with management, but the Company was still feeling the effects of the global recession. At the time and as a result of lower commodity prices, Great Panther was trading around $0.33 per share and was about to report its first successive decrease in quarterly production since Q4 2007.
In July 2009, we once again had the good fortune to spend several days with the Great Panther team, this time in Guanajuato, Mexico. Guanajuato is a historic mining district where gold and silver deposits were discovered as early as 1548. Over the last 450 years, Guanajuato has produced more than 1.2 billion ounces of silver and 4.5 million ounces of gold. Over the period of about 10 hours, we entrenched ourselves in Guanajuato's mining culture. Our day began in Great Panther's offices at the processing facility where Bob Archer, Charlie Brown, and Carlos Castro Villalobos discussed current operations and prepared us for entry into the mines, the latter of which included donning jump suits (think GhostBusters), giant rubber boots, and hard hats with headlights. After several chuckles and probably too much time, we were ready to make our descent.
We entered the Cata shaft on foot, but it wasn't long before we arrived at an elevator. Four of us climbed in and for about six or eight minutes down we went. We exited the elevator approximately 350 meters below. As we waited for the elevator to bring the rest of our group down, we were entertained by and educated about an "ore dump." A series of four or five connected ore cars, each one loaded to capacity with ore, made their way down the tunnel to where we were standing. One at a time, the contents from each ore car was emptied into what is known as a "grizzly," a massive strainer through which the ore must fit in order to then be taken to the processing facility. Any ore which could not fit through the grizzly was manually broken apart with a sledge hammer.
Once the elevator arrived with the rest of our group, we continued our descent, this time on foot, to approximately 500 meters below the surface. For those struggling with the conversion right now, that's almost one-third of a mile into the earth. At that depth, it was incredibly hot and the air conditioning was noticeably absent. We consumed as many waters and Gatorades as we possibly could, all the while sweating profusely. Anybody looking for a quick way to lose 10 pounds, look no further than a mine tour with Bob Archer, who by the way could not have been more energetic and enthusiastic in describing the Company's operations, despite the conditions, including during the long and grueling uphill climb back to the elevator shaft.
Throughout the mine tour there were a number of consistencies which really impressed us. First, considering we were in a dirt tunnel, it was impeccably clean. Second, the mine workers were constantly busy, whether they were drilling, securing the ceiling, preparing to dynamite, or trucking ore, not once did we see anyone standing around idle. Third, high grade ore was visible along the walls nearly everywhere. Fourth, safety was a top priority, precautions and controls were found throughout. Overall, it was an extremely impressive operation, one in which everyone involved took great pride. From Bob Archer, Great Panther's CEO to the Company's newest recruit in the mine, everybody was honored to consider themselves a part of this Company.
Fast forward to October 2009. Great Panther reported record production of 597,057 silver equivalent ounces for Q3 2009. This represents an increase of 97,212 silver equivalent ounces or 19% over its previous best quarter. Furthermore, Great Panther has now enjoyed 12 out of 15 successive increases in quarterly production dating back to early 2006. The Company recently completed what is expected to be its third successive quarter of record earnings from mining operations, and providing metal prices remain robust, this is a trend which we expect to continue for the foreseeable future. Great Panther's management considers that the best way to capitalize on an increase in the silver price is to do so by monetizing it through production.
For many companies and their CEOs, this kind of growth would seem sufficient and deserving of some time off. Not the case with Great Panther's management team, led by the Company's President and CEO, Bob Archer. "Great Panther is one of the fastest growing primary silver producers in Mexico, through our two, 100% owned operating mines," commented Archer in a recent interview. "Our goal is to be a mid-tier silver producer and to do it profitably. And we're well on the way to doing that."
A lot of companies and CEOs have grandiose ideas of becoming mid-tier silver producers, but not all of them have developed corresponding plans. Once again, not the case with Great Panther. The Company recently announced a new 3-year growth strategy focused on an immediate and aggressive increase in production to approximately 3.8 million silver equivalent ounces or more than $50 million (assuming US$15/oz silver, US$900/oz gold, US$0.80 lead and US$0.75 zinc ) by 2012. In addition, Great Panther intends to build its resource base at Guanajuato and Topia to a minimum of 40 million silver equivalent ounces, which would support a minimum 10 year mine life. Capital expenditures for the new strategy are projected to total approximately $22 million over the next 3 years, with an additional $14 million in exploration spending. It is anticipated that the vast majority of this will be funded internally from cash flow.
In order to achieve this accelerated growth, the Company will invest in new equipment for both mines, plant upgrades and an increased drilling budget. New underground mine development is anticipated to reach more than 10 kilometres at Guanajuato and 5.5 kilometres at Topia. Plant throughput is expected to approach capacities of 1,200 tonnes per day at Guanajuato and 220 tonnes per day at Topia.
The production, revenue, and earnings growth made by Great Panther this year have not gone unnoticed as the Company's share price has rebounded from a 52-week low of $0.18 a year ago to a high of $1.25 on September 8, 2009. As a result of what we believe was some profit taking, the stock has pulled back from those highs and established a new floor price in the mid 80 cent range. With 91.5 million shares outstanding, 5% of which is held by beneficial owners and management, the Company has effectively managed its capital structure.
With 2009 nearing a finish, news stories to watch for include the impact on revenue, cash flow, and profitability resulting from the Company's recently announced record third quarter production. In 2010, we look for continued growth from the Company, particularly as a result of the implementation of the Company's new 3-year growth strategy. Not that long ago, the stock traded as high as $2.50, a return to which would provide investors with a gain of more than 200%. 200% may be too much to ask for in today's market, but for patient investors, Great Panther is a company positioned for growth.
Disclaimer: BabyBulls is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities to buy or sell. Investors should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment. This investment brief is an independent publication committed to providing factual information on Great Panther Resources Limited. BabyBulls receives compensation for the development and distribution of this overview, additional information for which is available at www.babybulls.com.
Fast forward to PDAC 2009. We again had the opportunity to spend some time one-on-one with Bob Archer, President of Great Panther Resources. We were comfortable with the story and with management, but the Company was still feeling the effects of the global recession. At the time and as a result of lower commodity prices, Great Panther was trading around $0.33 per share and was about to report its first successive decrease in quarterly production since Q4 2007.
In July 2009, we once again had the good fortune to spend several days with the Great Panther team, this time in Guanajuato, Mexico. Guanajuato is a historic mining district where gold and silver deposits were discovered as early as 1548. Over the last 450 years, Guanajuato has produced more than 1.2 billion ounces of silver and 4.5 million ounces of gold. Over the period of about 10 hours, we entrenched ourselves in Guanajuato's mining culture. Our day began in Great Panther's offices at the processing facility where Bob Archer, Charlie Brown, and Carlos Castro Villalobos discussed current operations and prepared us for entry into the mines, the latter of which included donning jump suits (think GhostBusters), giant rubber boots, and hard hats with headlights. After several chuckles and probably too much time, we were ready to make our descent.
We entered the Cata shaft on foot, but it wasn't long before we arrived at an elevator. Four of us climbed in and for about six or eight minutes down we went. We exited the elevator approximately 350 meters below. As we waited for the elevator to bring the rest of our group down, we were entertained by and educated about an "ore dump." A series of four or five connected ore cars, each one loaded to capacity with ore, made their way down the tunnel to where we were standing. One at a time, the contents from each ore car was emptied into what is known as a "grizzly," a massive strainer through which the ore must fit in order to then be taken to the processing facility. Any ore which could not fit through the grizzly was manually broken apart with a sledge hammer.
Once the elevator arrived with the rest of our group, we continued our descent, this time on foot, to approximately 500 meters below the surface. For those struggling with the conversion right now, that's almost one-third of a mile into the earth. At that depth, it was incredibly hot and the air conditioning was noticeably absent. We consumed as many waters and Gatorades as we possibly could, all the while sweating profusely. Anybody looking for a quick way to lose 10 pounds, look no further than a mine tour with Bob Archer, who by the way could not have been more energetic and enthusiastic in describing the Company's operations, despite the conditions, including during the long and grueling uphill climb back to the elevator shaft.
Throughout the mine tour there were a number of consistencies which really impressed us. First, considering we were in a dirt tunnel, it was impeccably clean. Second, the mine workers were constantly busy, whether they were drilling, securing the ceiling, preparing to dynamite, or trucking ore, not once did we see anyone standing around idle. Third, high grade ore was visible along the walls nearly everywhere. Fourth, safety was a top priority, precautions and controls were found throughout. Overall, it was an extremely impressive operation, one in which everyone involved took great pride. From Bob Archer, Great Panther's CEO to the Company's newest recruit in the mine, everybody was honored to consider themselves a part of this Company.
Fast forward to October 2009. Great Panther reported record production of 597,057 silver equivalent ounces for Q3 2009. This represents an increase of 97,212 silver equivalent ounces or 19% over its previous best quarter. Furthermore, Great Panther has now enjoyed 12 out of 15 successive increases in quarterly production dating back to early 2006. The Company recently completed what is expected to be its third successive quarter of record earnings from mining operations, and providing metal prices remain robust, this is a trend which we expect to continue for the foreseeable future. Great Panther's management considers that the best way to capitalize on an increase in the silver price is to do so by monetizing it through production.
For many companies and their CEOs, this kind of growth would seem sufficient and deserving of some time off. Not the case with Great Panther's management team, led by the Company's President and CEO, Bob Archer. "Great Panther is one of the fastest growing primary silver producers in Mexico, through our two, 100% owned operating mines," commented Archer in a recent interview. "Our goal is to be a mid-tier silver producer and to do it profitably. And we're well on the way to doing that."
A lot of companies and CEOs have grandiose ideas of becoming mid-tier silver producers, but not all of them have developed corresponding plans. Once again, not the case with Great Panther. The Company recently announced a new 3-year growth strategy focused on an immediate and aggressive increase in production to approximately 3.8 million silver equivalent ounces or more than $50 million (assuming US$15/oz silver, US$900/oz gold, US$0.80 lead and US$0.75 zinc ) by 2012. In addition, Great Panther intends to build its resource base at Guanajuato and Topia to a minimum of 40 million silver equivalent ounces, which would support a minimum 10 year mine life. Capital expenditures for the new strategy are projected to total approximately $22 million over the next 3 years, with an additional $14 million in exploration spending. It is anticipated that the vast majority of this will be funded internally from cash flow.
In order to achieve this accelerated growth, the Company will invest in new equipment for both mines, plant upgrades and an increased drilling budget. New underground mine development is anticipated to reach more than 10 kilometres at Guanajuato and 5.5 kilometres at Topia. Plant throughput is expected to approach capacities of 1,200 tonnes per day at Guanajuato and 220 tonnes per day at Topia.
The production, revenue, and earnings growth made by Great Panther this year have not gone unnoticed as the Company's share price has rebounded from a 52-week low of $0.18 a year ago to a high of $1.25 on September 8, 2009. As a result of what we believe was some profit taking, the stock has pulled back from those highs and established a new floor price in the mid 80 cent range. With 91.5 million shares outstanding, 5% of which is held by beneficial owners and management, the Company has effectively managed its capital structure.
With 2009 nearing a finish, news stories to watch for include the impact on revenue, cash flow, and profitability resulting from the Company's recently announced record third quarter production. In 2010, we look for continued growth from the Company, particularly as a result of the implementation of the Company's new 3-year growth strategy. Not that long ago, the stock traded as high as $2.50, a return to which would provide investors with a gain of more than 200%. 200% may be too much to ask for in today's market, but for patient investors, Great Panther is a company positioned for growth.
Disclaimer: BabyBulls is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities to buy or sell. Investors should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment. This investment brief is an independent publication committed to providing factual information on Great Panther Resources Limited. BabyBulls receives compensation for the development and distribution of this overview, additional information for which is available at www.babybulls.com.
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