Santacruz Silver Mining (SCZMF): A High-Conviction "Cigar Butt" Play in a Silver Renaissance

In the annals of value investing, few concepts are as compelling as the "cigar butt" strategy-buying undervalued, out-of-favor companies with durable cash flows and the potential for a rebound. Santacruz Silver Mining (TSXV: SCZ, OTC: SCZMF) fits this archetype with remarkable precision. As silver prices surge past $54 per ounce in October 2025 and the sector enters a fifth consecutive year of supply deficits, Santacruz's combination of operational resilience, a leveraged cost structure, and a valuation that appears disconnected from fundamentals makes it a standout candidate for momentum-driven investors.

A Tale of Two Metrics: Undervaluation and Momentum

Santacruz's financials in Q3 2025 tell a story of divergence. While net income dipped 7% year-over-year to $16.34 million, adjusted EBITDA soared 67% to $19.51 million, driven by a 30% increase in silver equivalent ounces produced. This performance, however, is overshadowed by its valuation. At a current share price of CA$2.86, Santacruz trades at a P/E ratio of 13.4x less than half the sector average of 26.7x. Its P/EBITDA multiple of 7.9x is similarly unloved, despite a fair value estimate of CA$86 per share a 96.7% discount to its intrinsic value.

This disconnect is not accidental. Analysts at SimplyWall St. argue that Santacruz's valuation is anchored to outdated assumptions. For instance, if silver prices reach $100/oz by 2026 as projected by BNP Paribas, Santacruz's share price could range between CA$43 and CA$86 even at $60/oz, the company's gross profit margins would expand significantly.

Momentum Catalysts: From Balance Sheet Strength to Strategic Moves

Santacruz's recent momentum is not just speculative-it's rooted in tangible catalysts. The company's Q3 results included a 225% year-over-year increase in cash and marketable securities to $59.23 million, while its working capital surged 186% to $69.20 million. These figures reflect a balance sheet that has been fortified by the repayment of the Base Purchase Price for its Bolivian assets, a move that eliminated a key overhang for investors.

Strategically, Santacruz is positioning itself for long-term growth. The Soracaya Project in Bolivia, a high-grade silver deposit with extensive drilling data, is now in the preliminary permitting phase-a critical step toward expanding production. Meanwhile, capital expenditures at the Zimapán mine in Mexico, including the acquisition of 15 new pieces of underground equipment, are expected to normalize all-in sustaining costs to $22-23 per silver equivalent ounce by Q4 2025. These initiatives, combined with the appointment of seasoned finance professional Bruce Wolfson to the board, signal a shift toward disciplined growth.

The Silver Price Lever: A Double-Edged Sword

Santacruz's leverage to silver prices is both its greatest strength and its most significant risk. With a cash cost of $28.62 per silver equivalent ounce, the company's breakeven point is well below current prices, which have surged past $54/oz. Analysts at Seeking Alpha note that Santacruz's production costs are among the lowest in the sector, making it uniquely positioned to benefit from the projected $60–$80/oz price range in 2025-2026.

However, this leverage also amplifies downside risks. A sharp decline in silver prices-driven by macroeconomic volatility or a slowdown in industrial demand-could erode margins. Yet, given the structural supply deficits and the metal's growing role in renewable energy applications, such a scenario appears unlikely in the near term.

A Cigar Butt with Spark

Santacruz's recent analyst upgrades and 880% year-to-date share price surge suggest that the market is beginning to catch up with its fundamentals. But the company's valuation still reflects a version of itself from 2023, not the 2025 entity with a stronger balance sheet, diversified operations, and a clear path to production growth.

For investors with a medium-term horizon, Santacruz represents a classic "cigar butt" opportunity: a company trading at a fraction of its intrinsic value, with catalysts that could unlock significant upside. As one analyst put it, "Santacruz is the outlier in a sector that's just starting to get noticed." In a world where silver is increasingly seen as a "new oil" this outlier may soon become a leader.