| | Profile Snapshot: First Silver Reserve Inc (FSR-T)
Monday, December 22, 2003
 First Silver Reserve Inc operates the 100% owned 800 tpd San Martin silver mine in Jalisco State of Mexico. The San Martin mine has produced from the high grade Zuloaga vein since 1983 (25 million ounces), with annual production ranging 2.1-2.4 million ounces silver since 1996, the year First Silver acquired the mine by issuing 28,745,000 shares. Most of that stock is still held by Hector Davila Santos. First Silver has not undertaken any equity financings since the RTO, and has funded operations through internal cash flow since 1997. Inferred reserves as of December 31, 2000 were estimated at 6,206,000 tonnes of 150 g/t silver (30 million contained ounces at 4.82 opt), with a mineable reserve of 1,282,000 tonnes of 293 g/t silver. Just over half the mineable reserve has been mined as of December 2003. Most of this resource resides within the Zuloaga vein, which has been developed to a vertical extent of 400 metres. Silver recovery is 87-90%. Operating costs are about US $45 per tonne, or US $4.50 per ounce, which makes the San Martin mine marginal at a silver price below $5 per ounce. Because of the sensitivity to a higher silver price First Silver does not hedge any of its silver production. The company encountered mill and operating problems in the summer of 2003 which disrupted production, causing working capital to turn into a US $140,000 deficit. Long term debt stands ot US $2.5 million. One insider owns 72% of the 37.7 million issued stock, (38.6 million fully diluted). Jim O'Rourke and Len Brownlie are the key Canadians on the board, though they do not own any stock. First Silver is one of the few publicly listed primary silver producers, but its single project focus and reliance on internal cash flow to fund reserve expansion has made the company a market orphan. However, because this asset is highly leveraged to the price of silver, a breakout in the silver price would generate a burst of cash flow that could fund a more aggressive growth strategy. The 7,241 hectare property hosts additional parallel and intersecting silver veins. During 2003 a $750,000 reserve expansion program was undertaken that includes 7,035 metres of core drilling. First Silver, which has been a $0.30-$0.49 bottom-fish buy reocmmendation since December 1995 and pretty much neglected as such, is now regarded as a Spec Cycle Hold 100% recommendation in anticipation of higher silver prices. On the assumption that silver can achieve a price of $10 or higher, the price target would be in the $3-5 range.
First Silver Reserve Inc (FSR-T)
| Bottom-Fish |
Ex-Bottom-Fish |
Game-Fish |
Shell-Fish |
Diamond Stock |
| Yes |
No |
No |
No |
No |
| Current Recommendation: |
Spec Cycle Hold 100% |
|
Status last changed: |
December 22, 2003 |
|
| Bottom-Fish Priority: |
|
|
Working Capital |
($140,000) |
12/22/2003 |
| Life Cycle Stage: |
Mid |
|
Cash Breakup: |
$0.00 |
|
| Issued Stock: |
37,696,921 |
|
Monthly Overhead: |
$106,404 |
|
| Fully Diluted: |
38,616,921 |
|
Non-Cash Hard Assets: |
$10,000,000 |
|
| Insider Stake: |
71.9% |
|
Market Capitalization: |
$54,063,689 |
|
| Institutional Stake: |
0.0% |
|
Current Stock Price: |
$1.40 |
|
| Story Type: |
Silver Producer |
|
Chart Pattern: |
Pennant |
|
| Key People: | Hector Santos |
| Current Bottom-Fish Since: |
December 5, 1995 |
|
Bottom-Fish Buy Range: |
$0.30-$0.49 |
Bottom-Fish Account ($1,000 worth bought at upper limit of buy range)
| Initial Position: |
2,041 |
|
Base Price: |
$0.49 |
|
| Current Position: |
2,041 |
|
Interim High: |
$1.99 |
306%
|
| Cumulative Sale Proceeds: |
$0 |
|
Interim Low: |
$0.35 |
-29% |
| Current Position Value: |
$2,857 |
|
Current Price: |
$1.40 |
186% |
| Total Value: |
$2,857 |
|
Gain/Loss from start price: |
$0.49 |
186% |
| Total Position Gain/Loss: |
186% |
|
Kaiser Ownership: |
No |
|
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|
Date |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
Status |
| First Silver Reserve Inc (FSR-V) |
11/28/1994 |
$0.65 |
BF Buy $0.50-$0.75 |
Buy 1,333 @ $0.75 |
$0 |
1,333 |
-13% |
BF Buy $0.50-$0.75 |
| First Silver Reserve Inc (FSR-V) |
12/5/1995 |
$0.49 |
Closeout old recommendation |
Sell 1,333 @ $0.49 |
$653 |
0 |
-35% |
Closeout Hold 0% |
| First Silver Reserve Inc (FSR-V) |
12/5/1995 |
$0.49 |
BF Buy $0.30-$0.49 |
Buy 2,041 @ $0.49 |
$0 |
2,041 |
0% |
BF Buy $0.30-$0.49 |
| First Silver Reserve Inc (FSR-T) |
12/22/2003 |
$1.23 |
Spec Cycle Hold 100% |
|
$0 |
2,041 |
151% |
Spec Cycle Hold 100% |
First Silver was first adopted as a bottom-fish buy in the $0.50-$0.75 range on November 28, 1995. A year later this recommendation was closed out on December 5, 1995 at $0.49 and redeclared a bottom-fish buy in the $0.30-$0.49 range. At the time First Silver was a shell bankrolled by Jim Blanchard which attempted to float a silver royalty concept whereby it hoped to acquire a royalty on silver byproduct revenue from major mines. A deal hammered out in 1996 fell apart at the last minute and the junior instead conducted a reverse takeover of the San Martin silver mine in Mexico. The high grade (10 opt silver) has been in production since 1983. Since the RTO First Silver has been a marginally profitable silver producer (about 2 million ounces per year) waiting for higher silver prices. First Silver was never closed out as a bottom-fish, and technically is still an open bottom-fish cycle. The stock has had two runs into the $1.90-$2.00 range, the first in early 1998, and the second in May 2002. A review conducted in December 2003 led to the conclusion that the company was in excellent shape to benefit from rising silver prices, and the existing bottom-fish buy recommendation was changed to a Spec Cycle Hold 100% recommendation.
TROCL Risk assessed as of December 22, 2003 - Overall Rating: 1+0+1+2+1=5
| Timing Risk |
Reorganization Risk |
Opportunity Cost Risk |
Catastrophe Risk |
Liquidity Risk |
Overall Risk |
| Medium |
Low |
Medium |
High |
Medium |
Medium |
Active Company Projects
| Country |
Region |
Project |
Net Interest |
Stage |
IPV $
MM |
$100 |
UPV
$500 |
$2000 |
Mineral Group |
Metals |
Deposit
Style |
| Mexico |
Jalisco |
San Martin |
100% WI |
M8-Production |
$54 |
 |
 |
 |
Gold & Silver |
Ag Au |
Vein |
Corporate Skyline - Overall Rating (Scale of 10): 6.4 - Good - Reviewed: December 22, 2003
| Story |
Asset |
Structure |
People |
| 4.6 |
4.4 |
8.5 |
8.0 |
Skyline Ranking Details
|
Factor |
Rank |
Avoid (0) |
Bad (1) |
So-So (2) |
Good (3) |
Excellent (4) |
| 1 |
Story - Target Size |
2 |
No Targets |
less than 500,000 |
500,000-1,000,000 |
1M-5M |
more than 5,000,000 |
| 2 |
Story - Portfolio Size |
1 |
0 |
1 |
2-4 |
5-10 |
more than 10 |
| 3 |
Story - Frontier Bluesky |
2 |
None |
Well Explored Area |
New Model or Technology in Well Explored Area |
Underexplored |
Unexplored |
| 4 |
Story - Geodiversity |
1 |
None |
One Country/one property |
One country /several properties |
One Continent/several properties |
Several Continents/Several Properties |
| 5 |
Story - Political Risk |
3 |
No Project Focus |
Unstable |
Trending toward instability |
Trending toward stability |
Stable |
| 6 |
Story - Title Risk |
2 |
No Title |
Disputed or pending private vendor; Aboriginal land claim or environmental permitting issues |
Unvested or vested in third world from private vendor or pending from third world government |
In N. America vested via private vendor or pending via government or granted by 3rd world government |
Acquired directly from non third world government by staking, permit, concession, etc |
| 7 |
Asset - Working Capital |
0 |
Zero or less |
less than 10% |
10-50% |
50-100% |
more than 100% |
| 8 |
Asset - Non-Cash Hard |
2 |
No Non-Cash Hard Assets |
less than 10% |
10-50% |
50-100% |
more than 100% |
| 9 |
Asset - Spec Premium |
2 |
100% |
more than 90% |
50-90% |
10-50% |
less than 10% |
| 10 |
Asset - Gold Oz Deficit |
3 |
more than 20,000,000 |
5,000,000-20,000,000 |
1,000,000-5,000,000 |
500,000-1,000,000 |
less than 500,000 |
| 11 |
Structure - Distribution |
4 |
Public owns more than 90% |
Insiders & Institutions each less than 10% |
Insiders & institutions each less than 20% |
Insiders or institutions each more than 20% |
Insiders more than 30% & institutions less than 20% |
| 12 |
Structure - Chart Pattern |
2 |
Exponential Rocket Launch |
Long-term uptrend reversal or double top or head & shoulders |
Trough or long term downtrend or flags or pennants or plateau |
Long-term downtrend reversal or Long-term uptrend or Double bottom |
Emerging from long term bottom |
| 13 |
Structure - Breakdown Risk |
3 |
2 year Hi/Lo Ratio more than 10, price in upper 10% of range |
2 year Hi/Lo ratio 5-10, price in upper 20% of range |
2 year Hi/Lo ratio 2-5, price in upper 20% of range |
Price in upper 50% of range but below upper 20% of range |
Price in lower half of range or high/low ratio less than 2 |
| 14 |
Structure - Shldr Mood |
4 |
Class Action Lawsuits |
Hangover-liquidation |
Drunken Exuberance, Sobering Up, or Smug Satisfaction |
Tipsy about potential or gearing for comeback |
Just getting started |
| 15 |
Structure - Resale Timebombs |
4 |
more than 50% restricted for 1 year plus |
more than 30% restricted for more than 6 months |
more than 30% restricted for 3-6 months |
more than 70% free within 3 months |
100% free |
| 16 |
People - Technical |
3 |
Blackbox specialists |
No geological or geographical |
Average geological & limited geographical |
Average geological and geographical |
Top-notch geological & geographical |
| 17 |
People - Funding Strategy |
4 |
Public Offerings |
Retail: brokered or private |
Institutional: brokered |
Farmouts or sophisticated |
Deep-pocketed insiders |
| 18 |
People - Funding History |
1 |
Zero $ |
less than $1M |
$1-5M |
$5-10M |
more than $10M |
| 19 |
People - Mgmt Priority |
4 |
Rollback Plan |
Failed promotion |
On the shelf |
Second String |
Flagship |
| 20 |
People - Stable Size |
4 |
More than ten |
Six to ten |
Four-six |
Two-three |
One |
| Discounted Cash Flow Valuations for a Simplified Mining Scenario |
| First Silver Reserve Inc - San Martin Mine, Jalisco State, Mexico - December 22, 2003 |
| The San Martin Mine in Jalisco State, Mexico has been in production since 1983 and has produced about 25 million ounces silver as of the end of 2003. The mine also produces a minor amount of byproduct gold at a grade of 0.5 g/t gold. The mineable reserve as of December 31, 2000 was estimated at 1,282,000 tonnes of 293 g/t silver (9.4 opt), with an additional inferred resource of 6,206,000 tonnes of 150 g/t silver (4.82 opt). These figures include 17% mining dilution and 95% recovery. Actual recovery based on mill head grade is 90% for silver and 80% for gold. As of Dec 31, 2002 First Silver has mined 518,879 tonnes of the mineable reserve. Mineralization consists of fissure vein deposits in the western escarpment of the Bolanos graben within a thick sequence of undifferentiated ash and lava flows. Silver occurs as argentite and stromeyerite, which phases post-date base metal sulphide deposition. Within the entire district the silver-gold ration ranges 800 to 290:1. Most of the resource resides within the Zuloaga Vein, which has been developed to a vertical extent in excess of 400 metres. Mineralized structures pinch and swell along strike. The property hosts 15 mineralized fault systems, of which the three most significant are the Zuloaga, Condesa and Rosario vein structures. A private company sold the project (100%, no royalties or carried interests) to a publicly listed shell in 1996 in exchange for 28,745,000 shares deemed at $0.40 for a total value of Cdn $11,498,000. Since then the company has used internally generated cash flow to fund ongoing reserve development. However, weak silver prices have caused the San Martin Mine to be marginal and the company has struggled to keep the mine going. The 800 tpd mill and underground mining operation employs 400 people. An environmental review in 2001 by Peter Megaw indicates that the current tailings ponds have storage capacity for 10 years. The mine reclamation and closure cost has been estimated at up to $5.8 million. Higher silver prices are essential for the financial health of the San Martin Mine. Production was disrupted in the summer of 2003 when ball mill gear and motor problems arose. An unusually long rainy season hampered stope development and saturated ore with moisture, which reduced operating efficiency. Although production was expected to be back to normal levels during the last quarter, the company expects to complete 2003 with less than 2 million ounces of production compared to 2.4 million in 2002. For modeling purposes it has been assumed that a mineable resource of 1,282,000 tonnes of 313 g/t silver and 0.5 g/t gold will feed the 800 tpd mill for another 5 years. Because the mining and milling infrastructure already exists, zero capital cost has been assumed. Operating costs are US $40 per tonne plus $4.50 per tonne in general and administrative costs. The first table indicates the impact on net present value of 5 years of production at various silver prices, and the second table reveals what happens if we assume the mine can operate another 21 years. The latter scenario is something of a stretch because it assumes the current grade will be maintained as additional ore is developed. The analysis indicates that a price target of $3-5 for First Silver requires the assumption of a silver price of $10 per ounce or higher and the ability to develop sufficient ore at current grades to keep the mine operating another 10-20 years. However, because the company does not forward sell its silver production and is an established silver producer, the company would be in an excellent position to take advantage of a spike in silver prices, and consequently could be expected to attract a much higher stock price under such circumstances than justified by discounted cash flow valuations. |
| All figures are metric units and in US dollars unless noted otherwise |
| Mine Parameters |
Cost Parameters |
Other Parameters |
| Mining Method |
Underground |
Capital Cost |
$0 |
Company |
First Silver Reserve Inc |
| Processing Method |
Milling |
Mining Cost |
|
Fully Diluted |
38,616,921 |
| Tonnage |
1,282,000 t |
Processing Cost |
$40.00/t |
Net Interest |
100% |
| Mining Rate |
800 tpd |
Marketing Cost |
|
CapEx Funding |
100% Equity |
| Operating Days |
365 |
Transportation Cost |
|
Years to Startup |
0 |
| Annual Ore Mined |
292,000 t |
Smelting Cost |
|
Cdn/US $ Exchange |
1.30 |
| Mine Life |
5 Years |
G&A Cost |
$4.50/t |
Discount Rate |
10% |
| Waste to Ore Strip |
|
Total Operating Cost |
$44.50/t |
Tax Rate |
35% |
| Concentrate |
|
Reclamation Cost |
|
Net Smelter Royalty |
0% |
| Commodities |
Pessimistic
Price
Scenario |
Current
Price
Scenario |
Optimistic
Price
Scenario |
Fantasy
Price
Scenario |
Grade |
Recovery |
Annual
Production |
| Silver |
$4.50/oz |
$5.50/oz |
$10.00/oz |
$20.00/oz |
313 g/t |
90% |
2,644,645 oz |
| Gold |
$325/oz |
$400/oz |
$400/oz |
$400/oz |
0.5 g/t |
80% |
3,755 oz |
| Rock Value (Recoverable) |
$45/t |
$55/t |
$96/t |
$186/t |
|
| Two Year Mine Life - 1,282,000 tonnes |
| Life of Mine Revenue |
$57.8 |
$70.5 |
$122.7 |
$238.9 |
('000,000) |
| Pre-Tax 0% NPV |
$6.3 |
$19.2 |
$71.4 |
$187.5 |
('000,000) |
| After-Tax 0% NPV |
$4.1 |
$12.5 |
$46.4 |
$121.9 |
('000,000) |
| Pre-Tax 10% NPV |
$4.9 |
$14.9 |
$55.5 |
$145.8 |
('000,000) |
| After-Tax 10% NPV |
$3.2 |
$9.7 |
$36.1 |
$94.7 |
('000,000) |
| Internal Rate of Return |
N/A |
N/A |
N/A |
N/A |
N/A |
| After-Tax 10% NPV US $/sh |
$0.08 |
$0.25 |
$0.93 |
$2.45 |
|
| After-Tax 10% NPV CDN $/sh |
$0.11 |
$0.33 |
$1.21 |
$3.19 |
|
| After-Tax 5% NPV US $/sh |
$0.09 |
$0..28 |
$1.05 |
$2.77 |
|
| After-Tax 5% NPV CDN $/sh |
$0.12 |
$0.37 |
$1.37 |
$3.60 |
|
| 21 Year Mine Life - 6,000,000 tonnes |
| Life of Mine Revenue |
$270 |
$329 |
$574 |
$1,117 |
('000,000) |
| Pre-Tax 0% NPV |
$29.6 |
$89.7 |
$334.3 |
$877.8 |
('000,000) |
| After-Tax 0% NPV |
$19.3 |
$58.3 |
$217.3 |
$570.5 |
('000,000) |
| Pre-Tax 10% NPV |
$12.4 |
$37.5 |
$139.7 |
$366.8 |
('000,000) |
| After-Tax 10% NPV |
$8.0 |
$24.4 |
$90.8 |
$238.4 |
('000,000) |
| Internal Rate of Return |
N/A |
N/A |
N/A |
N/A |
|
| After-Tax 10% NPV US $/sh |
$0.21 |
$0.63 |
$2.35 |
$6.17 |
|
| After-Tax 10% NPV CDN $/sh |
$0.27 |
$0.82 |
$3.06 |
$8.03 |
|
| After-Tax 5% NPV US $/sh |
$0.31 |
$0.93 |
$3.47 |
$9.10 |
|
| After-Tax 5% NPV CDN $/sh |
$0.40 |
$1.21 |
$4.51 |
$11.183 |
|
Annual Information Form - May 15, 2003 - 23 pages 71 K |
