Replies to post #18602 on ~*~Mining and Metals Du Jour~*~

[JohnCM]

Update: Starcore International Posts Strong Q1 Results

By Ben Kramer-Miller Seeking Alpha
Dec. 10, 2014 10:26 PM ET

Starcore International earned C$870,000 in Q1 earnings.

This exceeds my expectations.

This remains a compelling gold stock, as investors fail to appreciate the exploration potential at the San Martin Mine.

Starcore International (OTCPK:SHVLF) recently announced its Q1 2015 earnings results. On one hand, they were bad insofar as revenue, operating cash flow and earnings all fell from the previous quarter. This was due to a few factors, including a falling gold price, a decline in the company's realized gold grade from 2.55 gpt. to 2.36 gpt. and a decline in recoveries from 87% to 84%. Nevertheless, the C$870,000 in quarterly profits is substantial when we consider that the company's NEV is just ~C$5 million.

Starcore has little appeal for many investors who don't like the fact that the company has limited reserves and that its exploration strategy is based mostly on replacing reserves rather than increasing them. The company, therefore, has a very short expected mine life at its San Martin Mine - just 2 years. Starcore has been able to increase these reserves on a regular basis, so that the mine has been operating for more than 20 years.

I argued that even in a fairly bearish scenario - higher-than-expected costs and failed reserve replacement - the stock was compelling. Essentially, you were getting a company with a sizable working capital position (C$13 million) and a cash flow-positive mine that can generate ~C$1.5 million in annual cash flow for just C$20 million.

These earnings clearly show just how conservative my annual cash flow assumptions were. As a result, I have more confidence in the investment thesis.

Investors should also note that the company recently purchased a very inexpensive ($700,000) yet promising acquisition in Nevada along the Cortez Trend, where Barrick Gold Corp. (NYSE:ABX) has 15 million ounces of gold. It will be interesting to see how the company develops from here, as it has not incorporated any expansion into its business model for some time now.

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