The relentless upward march of gold during the last 5 years has seen a remarkable rekindling of interest in mining juniors. But despite the large numbers of junior and mid cap gold companies coming to AIM there is a paucity of quality silver plays for AIM followers to back. It was to tap into this interest that the moribund media company Directex Realisations was in January 2011 transformed into Woodburne Square Ag (Ag being the chemical symbol for silver) with a direct mandate to invest in high quality global silver plays as well as special situations in gold.
At the time of the transformation of Directex into Woodburne, the CEO of GE&CR's parent company Tom Winnifrith was appointed Chief Investment Officer in January and it is he who decides where the company invests while the board of chairman Martin Kiersnowski and directors Nicholas Hall and Russell Darvill ensure that the corporate body runs smoothly. Winnifrith manages the SF t1ps Smaller Companies Gold Fund (which has long held a material weighting in silver) and which was the UK's top performing fund across all sectors during the past 12 months returning a gain of 102% - the next best gold fund booked a 56% gain. Among the 117 fund managers accorded Alpha Status by Trustnet, Winnifrith is ranked first by performance over 6 months, 1 year and 3 years.
Since its change of focus, the company has invested in 5 listed holdings, 4 of which are silver plays and the fifth gold.
Woodburne's most valuable holding is the 1,765,000 listed warrants held in Ascot Mining which, at a current price of 31.5p, have a face value of £555,975. These warrants are exercisable at any time before November 2015 with a strike price of 20p each Ascot is aggressively ramping up gold production in Costa Rica and, having recently upgraded its Chassoul mill to a capacity of 150 tpd (tonnes per day), is now looking to monetise its holdings in 3 other projects - namely Tres Hermanos, El Recio and the Boston Concession. This Plus quoted company is preparing for a move to AIM which is likely to see its shares re-rated significantly.
First Majestic Silver, in which Woodburne holds 18,700 shares valued (on the close on Friday 18th February) at C$261,987 (£163,408), is a TSX listed silver producer at three mines in Mexico. The company had net production of 7,024,055 ounces of silver equivalent in 2010 and is targeting 7.5 million ounces in 2011. The company has defined NI43-101 resources across 5 projects and, with an expanded exploration budget for 2011, anticipates releasing a new resource statement towards the end of 2011 or early 2012.
The third holding is in Great Panther, which, like First Majestic, is operating in Mexico and listed on the TSX. Woodburne's holding of 124,000 shares is currently valued at C$373,992 (£233,269). Great Panther is producing from both its Guanajuato and Topia mines with output from the former 1,433,555 ounces of silver equivalent in 2010 and output from the latter 822,247 ounces of silver in the same 12 month period. Ongoing drilling is looking to define new resources at Guanajuato while the company has a near term production target of 3.8 million ounces of silver equivalent by 2012.
The final investment in Woodburne's portfolio is 11,700 shares valued at C$452,541 (£282,262) in TSX listed Silver Wheaton. Promoting itself as 'the world's largest silver streaming company', Silver Wheaton currently has 14 silver purchase agreements and 2 precious metals agreements which gives it the right to purchase future production at a fixed price.
The above commentary has simply looked at the current value of Woodburne's portfolio without assessing the factors driving its future potential value. Ascot Mining is the hero asset currently held and with the warrant's already deep in the money, could be realized for a handsome profit immediately. However, Ascot, which should be producing at a monthly rate of 1,200 ounces of gold by March, is looking to double this by the middle of the year. The company's ambition is to become a 60,000+ ounce per annum producer and with operating costs below $400 per ounce and major development plans at 5 concessions, there is tremendous share price upside. As silver producers, First Majestic and Great Panther will undoubtedly benefit directly from a rising commodity price, but also their respective drilling programs aimed at increasing defined resources. Also driven by resource definition will be Kootenay Gold which currently has in excess of $320 million of metal in the ground at Promontorio. At the opposite end of the spectrum is Silver Wheaton whose performance is entirely tied to the silver price as it speculates on future prices.
If we risk weight the French tax losses at 75% the overall net asset value of Woodbourne is 4.25p per share but there is huge operational gearing to the silver price via the three quality Canadian blue chip/mid cap plays and the highly regarded Canadian junior Kootenay. There is also clear scope for the Ascot investment to appreciate materially as it moves to AIM: Winnifrith has stated that he believes that Ascot shares are worth 150p each.
The shares now trade at a modest premium to our risk weighted NAV but there is enormous upside to that NAV from the continuing progress of the Ascot corporate development but more importantly from the huge operational gearing to silver - we note that shares in Great Panther rose by almost 10% on Thursday and Friday of last week. With no quality silver producers listed on AIM, the rarity value of Woodburne makes it a unique proposition.
*Woodburne Square Ag is a corporate client of Rivington Street Holdings (RSH) the ultimate owner of GE&CR and funds managed by an RSH subsidiary own shares in this company. Tom Winnifrith, the CEO of RSH is also Chief Investment Officer of Woodburne.
Source: Thomas Jones, UKAnalyst
