Aya Gold & Silver (Toronto: AYA) — a new recommendation — is a Morocco-focused silver producer-explorer that’s about to make the jump to a mid-tier silver company, notes junior mining expert Brien Lundin, editor of Gold Newsletter.

Its primary avenue for that growth will be its Zgounder silver project. Zgounder has been in operation since 2014 and in recent years has eked out significant production gains, going from 452,000 ounces of silver in 2019 to 1.99 million ounces of silver in 2022. Aya has provided guidance for 2023 of between 1.7 and 1.9 million ounces.

That’s all to the good, but it’s the company’s ongoing expansion plans for Zgounder that have me excited about its prospects.

Aya generated a feasibility study on the expansion project that will see Zgounder’s production capacity increase from 700 tpd to 2,700 tpd. Using $22/oz. silver, that will translate into an after-tax NPV of $373 million, an internal rate of return of 48% and a capex of just $139 million.

The mine would produce 6.8 million ounces per year over an 11-year mine life and over 8 million ounces per year over the first five years of increased production.

Zgounder has an impressive silver resource totaling 102 million ounces of silver at 310 g/t silver, a measured and indicated resource totaling 96 million ounces of silver at 306 g/t silver, and proven and probable reserves of 70.9 million ounces at 257 g/t silver.

The company has embarked on a 40,000-meters-plus exploration program in 2023 to grow the resource and convert more ounces to reserves. Aya is also engaging in regional exploration in search of a 20-million-ounce-plus satellite resource that could allow Zgounder to produce up to 12 million ounces per year.

Aya also controls the Boumadine project, which lies 300 kilometers east of Zgounder. A now immaterial PEA on Boumadine pegged its measured and indicated resource at 2.29 million tonnes of 1.84 g/t gold, 128.3 g/t silver, 3% zinc and 1.17% lead.

Its inferred resources were 6.45 million tonnes of 214 g/t silver equivalent. In all the project contains more than 65 million ounces of silver equivalent resources.

Those resources also have the potential to grow, and Aya is in the middle of a drilling program that may well total 100,000 meters by the end of 2024. The company currently has five rigs active at Boumadine and plans to have a new resource estimate by Q1 2024.

Aya also owns a small gold project called Tijirit in Mauritania. That project has seen some work in 2022 and 2023 and will eventually see a feasibility study.

It’s the impending production growth at Zgounder, however, that has me adding Aya to our list at this point. According to the company’s most recent update, it has completed 45% of the expansion project and spent $56 million.

Aya has $50 million in cash on hand and a $100 million debt facility. Between those two sources, it should have more than enough money to cover the $85 million to complete the expansion.

As one of the world’s very few primary silver producers, Aya should provide big-time leverage on rising silver prices. With the substantial upside at Boumadine essentially a bonus, Zgounder could allow Aya to deliver a double over the next year.

At roughly a C$1 billion market cap, Aya isn’t cheap, although its price has come down quite a bit along with the broader market this year. Given this company’s singular potential as a silver lever, I am very comfortable adding this company as a buy at or near current levels.

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