Silver Mines Ltd (ASX: SVL) is progressing its Bowdens silver project in the central west region of New South Wales, and expects to release its definitive feasibility study on the project imminently.
The analyst team at Morgans has run the ruler over the project and has come up with a very bullish share price target on Silver Mines shares, which we'll get to shortly.
First, let's have a look at why Morgans likes the company so much.
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Large silver project progressing toward development
Morgans said Silver Mines' Bowdens project is Australia's largest undeveloped silver resource and one of the largest globally.
The deposit also remains open beyond the current mining plan, "leaving room for reserve growth, mine life extension and underground potential''.
Morgans notes that direct silver exposure is rare among ASX miners, and in this case, "with silver contributing ~86% of life-of-mine revenue, Bowdens is one of the purest ways to gain leverage to rising silver prices through an advanced Australian development asset''.
The broker has modelled free cash flow of $1.63 billion over the life of the mine, and added, "we expect the upcoming Definitive Feasibility Study (DFS) to further refine the development pathway and potentially unlock additional value through updated pricing assumptions, optimisation initiatives and mine life extensions''.
They added:
We forecast first production in FY30, providing sufficient time for completion of the revised approvals process, project financing and construction. Following multiple engineering studies, metallurgical programmes and optimisation work, we consider Bowdens a technically mature development asset, leaving permitting and financing as the principal remaining milestones.
Shares looking cheap
Morgans has a 40-cent per share price target on Silver Mines, compared to the current price of 12.5 cents per share.
The broker said that the market "continues to undervalue Bowdens' combination of scale, technical maturity and leverage to a structurally improving silver market''.
They added:
While permitting remains the dominant risk, we believe this is increasingly offset by a more clearly defined approvals pathway, an advanced stage of project development, and multiple near term catalysts capable of reducing the regulatory discount currently reflected in the share price. Our thesis rests on what we view as an increasingly compelling asymmetry in Bowdens' risk-reward profile, underpinned by exceptional leverage to a strengthening silver price, a technically mature development plan and a more clearly defined permitting pathway.
They added that their valuation only reflects a portion of the company's broader options, including further open-pit cutbacks and potential resource growth.
Silver Mines is currently valued at $277.42 million.
