Small miners: unloved and undervalued

Small scale mining companies never quite seem to capture investors’ attention; they’re not high-risk/high-reward, like their exploration counterparts and they don’t generate large levels of free cash flow like the much larger miners, but there are many benefits to owning these small-scale producers. Compared to exploration companies, small-scale miners don’t need to continually raise equity, so shareholders do not see their holdings diluted. If a company is building a mine or operating a mine, that means an economic deposit has already been discovered, so there isn’t a risk that money will be spent and nothing will be found. Unlike their larger producing peers, smaller miners can often fund the development of their projects internally, or from limited equity and normally with very little debt. As a result, their balance sheets are strong, and the cash flow generated can be re-invested to grow the business or it can be returned to shareholders. The unpopularity of small producers with investors means they often trade on more attractive multiples compared to larger producers, giving investors much more bang for their buck. They grow with lower levels of dilution. Just because production levels start small, doesn’t mean they have to stay small. Often increasing production levels from small operators is a generally slow and gradual process, but as they achieve this growth organically, there is a real value to it. The smaller-scale nature of these operation makes it relatively easier to develop a mine, allowing more inexperienced management teams to go through the construction process in a more manageable way and grow their operations with a lower development risk. In this article, we take a look at some of our favourite small miners. Golden Minerals Company  Golden Minerals Company (NYSEAMERICAN:AUMN) (TSX:AUMN) has now made the transition from developer to producer and is currently increasing production levels at its open-pit Rodeo Gold-Silver Mine, located in Durango State, Mexico. At present Rodeo has a short mine life, of 2.5 years, but with a 2,000 metres (m) drilling programme currently underway, testing near-surface targets located immediately adjacent to the current open pit, Golden Minerals is confident that the mine life will be expanded. Initial results from this internally funded drilling programme have been positive with results expanding the currently modelled high-grade zone to the north. Despite Rodeo's current short mine life, Golden Minerals expects the cash flow it generates to play an important role in its business's growth. Rodeo's 2021 after-tax cash flow is estimated, by Golden Minerals, to be between US$9.0mln to US$10.5mln, which should enable the company to fund the initial start-up of silver-lead-zinc operations at its much larger Velardeña Project. AfriTin Mining Ltd AfriTin Mining Ltd (LON:ATM) is a mining company focused on increasing production levels at its 85%-owned Uis Tin-Lithium-Tantalum Project, located in Namibia. AfriTin has evolved from being a tin focused development company to be a tin miner and a polymetallic development company. AfriTin has completed Stage I of its Phase 1 production ramp-up at its pilot mining and processing facility, with tin concentrate production for the first quarter (Q1) of fiscal 2022 totalling 183 tonnes (containing 114 tonnes of tin metal), which exceeds the production target of 180 tonnes. The company is currently progressing the implementation of the Uis Phase 1 Stage II expansion project, to potentially increase tin concentrate production by 67%. AfriTin has also commenced by-product test work on tantalum and lithium oxide, intending to realise additional revenue streams. Tirupati Graphite PLC's Tirupati Graphite PLC's (LON:TGR) is a fully integrated, revenue-generating, specialist graphite and graphene producer with operations in Madagascar and India. The company owns two graphite mining licences, located in the Atsinanana Region of Madagascar. Vatomina is situated about 70 kilometres (km) south of Toamasina, the port city of Madagascar and Sahamamys is located 8km west of Vatomina. During Q121 operations at the 3,000 tonnes per annum (tpa) Sahamamys Graphite Mine achieved record production and sales. The company also recently announced the opening of its second mine in Madagascar at the Vatomina Project, where it remains on track to start commissioning the first 9,000 tpa processing plant in Q221. Tirupati is eyeing much bigger growth levels in the future and has initiated preparations to commence the accelerated construction of Sahamamy's next plant, which has a planned capacity of 18,000 tpa. This is intended to bring total capacity across both Madagascan projects to 30,000 tpa by Q1 2022 and a globally significant 84,000 tpa by 2024. W Resources PLC W Resources PLC (LON:WRES) commenced production at its La Parrilla Tungsten-Tin Mine in November 2019. During the rollout of production, W Resources has faced many issues, the most recent of which was the flooding of the open pit, which prevented the company from mining the higher-grade areas of the pit. W Resource has now finished the construction of a new 500,000m3 dam that should allow the company to begin to access the high-grade areas of the open pit. A permanent solution to the water issues at La Parrilla, comprising a second dam, is currently at the design stage and is expected to be completed in Q4 2021, which should enable the operation to return to a seven days a week production schedule. As a result, the company has issued concentrate production guidance for 2021 of between 880 tonnes (t) and 1,000t. Strategic Minerals Strategic Minerals (LON:SML) has operated the Cobre magnetite tailings dam project in New Mexico, USA, since 2012. During the 12-months to March 21, the operation produced 51,567t and generated sales of US$3.0mln, an increase of 12% on the previous year. This operating revenue stream is used to cover both company overheads and invest in development projects orientated to supplying the burgeoning electric vehicle/battery market. The company's wholly-owned subsidiary, Southern Minerals Group, is also continuing to remain in contact with the receiver appointed by the US Securities Exchange Commission concerning Strategic Minerals' US$21.9mln arbitration claim against CV Investments LLC. The receiver is currently in the process of identifying and validating assets applicable to this claim. The company will update the market with details as and when they are provided by the receiver. Pembridge Resources PLC's Pembridge Resources PLC's (LON:PERE) owns an 11% interest in the Minto Copper-Gold-Silver Mine located in the Yukon, Canada. During the first quarter of 2021 the operation produced around 7,023 wet metric tonnes of concentrate up from 5,143 wet metric tonnes in Q4 2020. As a result, Minto received payments of US$20.8mln from Sumitomo up from US$17.5mln in Q4 2020. To help fund its continuing development, Minto has is planning a reverse takeover on the TSXV. with a publicly listed corporation, 1246778 B.C. Ltd. and will seek to raise up to CD$45mln. Following completion of the reverse takeover, Minto Metals Corp. will own 100% of the copper-producing Minto mine with Pembridge intending to participate in the placing to attain equity ownership of Minto Metals Corp. in line with its current equity holding in Minto Mine. The reverse takeover is expected to complete in Q321.