Bilbao Economics Update: A Catalyst for Re-rating or Just Noise?

The immediate catalyst is a straightforward announcement: Royalties Inc. has hired SLR Consulting to update the 2014 Preliminary Economic Assessment (PEA) for its Bilbao project. The report is expected within a month. This isn't a new discovery or a major capital raise; it's a targeted review of existing data using today's metal prices and a look at a specific technical question.

The mechanics are clear. The original 2014 PEA used trailing average prices that are now obsolete, with silver prices having effectively tripled. More importantly, the initial mine plan excluded the project's deeply weathered oxide cap, focusing only on the lower sulphide zone. SLR's mandate includes a "high-level assessment of potential high iron-oxide ore processing technologies" to see if value can be unlocked from that excluded portion. The core question for investors is whether this review will confirm that the project's economics have fundamentally improved, or if it will merely reiterate what's already known.

This creates a classic event-driven setup. The update is a low-cost, high-impact catalyst. If SLR's analysis shows the oxide zone can be processed profitably with current prices, it could significantly increase the project's tonnage and resource value, potentially justifying a re-rating of the royalty. If it finds the oxide remains uneconomic, the stock may see a relief rally on the news that the potential is being formally evaluated, followed by a reset. The tactical opportunity lies in the one-month window of uncertainty before the report, where the stock could trade on speculation about the outcome.

The Baseline: 2014 PEA Economics and Current Commodity Reality

The foundation for any re-rating is the project's known past economics. The 2014 Preliminary Economic Assessment laid out a clear but dated picture. It assumed silver at $30.24 per ounce, zinc at $0.94 per pound, and lead at $1.01 per pound. The plan was for an 8-year mine life with a $100 million capital expenditure to build. At those prices, the project's viability was a function of its polymetallic resource and the initial focus on the sulphide zone.

Today's reality is a world apart. Silver prices have effectively tripled since 2014, trading near $89.56 per ounce as of this week. This is a 192% increase from the 2014 baseline. For zinc, the story is one of sustained strength. Prices in 2024 rose 18-20% year-over-year, driven by a tight global market where supply disruptions and strong demand from infrastructure and renewables have kept the metal in short supply. The market remains constrained, with limited concentrate supply and policy-driven smelter adjustments continuing to support prices.

This stark price divergence sets up the fundamental question. The original PEA's economics were built on a silver price that is now less than half of today's level. The project's resource, particularly the deeply weathered oxide cap that was excluded from the initial plan, was never evaluated against this new, much richer commodity backdrop. The SLR update is a direct attempt to answer whether that exclusion was a missed opportunity or a prudent technical limitation. The baseline economics are now vastly more favorable, but the key unknown is whether the project's physical characteristics can capture that value.

The Valuation Impact: Sensitivity and Oxide Potential

The direct financial implication of the SLR update is a revised sensitivity analysis. The core task is to plug today's elevated metal prices into the existing 2014 mine plan. The numbers tell the story: silver has tripled over the last year, and zinc prices have also seen significant gains. This alone would dramatically improve the project's revenue profile. The PEA's original plan projected one million ounces of silver and 20 million pounds of zinc annually. At current spot prices, that potential annual revenue has effectively doubled.

The real value driver, however, is the oxide cap. The 2014 plan excluded this portion, focusing only on the lower sulphide zone for an eight-year mine life. SLR's mandate includes a "high-level assessment of potential high iron-oxide ore processing technologies" to see if this material can be processed profitably. Successfully unlocking the oxide zone would be transformative. It could significantly extend the mine life and add substantial tonnage to the resource base, directly increasing the project's Net Present Value (NPV).

The update provides a tangible metric to watch. The report is due within a month, creating a clear catalyst for a potential re-rating of the underlying asset value. The mechanics are straightforward: higher prices boost the NPV of the known sulphide resource, while a positive oxide assessment could unlock a new, high-grade ore body. The market will price in the probability of each outcome. For now, the stock trades on the uncertainty of that assessment.

Catalysts and Risks: The Path to Realization

The immediate path is clear: wait for the SLR report, due in about a month. The stock's price action over the next 30 days will be a function of speculation about the outcome. A positive sensitivity analysis, confirming that today's metal prices make the known sulphide resource far more valuable, could trigger a revaluation. The real catalyst for a significant move, however, would be a favorable assessment of the oxide cap. If SLR identifies viable, low-cost processing technologies, it would unlock a new, high-grade ore body and extend the mine life, directly increasing the project's Net Present Value. The market would price in the probability of this outcome.

The key risk is the opposite: that the oxide processing technologies remain high-cost or unproven. The mandate is a "high-level assessment," not a full feasibility study. If SLR concludes that extracting value from the deeply weathered cap is not economically feasible with current tech, the upside from the cap is capped. The stock may see a relief rally on the news that the potential is being formally evaluated, followed by a reset as the market digests the limitations. The risk here is that the update merely confirms what many already suspect: the oxide zone is a technical dead end.

Separately, the company faces a known operational risk: the pending Amparo against Capstone. While the legal position is considered weak and the outcome is expected to favor Royalties Inc., the process is a distraction. It delays the quantification and collection of approximately $2 million in annual royalties owed from 2019 to 2025. This is a tangible, near-term cash flow that could support the company's operations or debt, but its realization is now tied to a slow-moving legal process. For now, it's a separate overhang that doesn't directly impact the Bilbao re-rating thesis but adds to the company's operational complexity.

The setup is a classic event-driven trade. The catalyst is binary: a positive oxide assessment could unlock substantial value, while a negative one caps the upside. The path to realization is a one-month wait for the SLR report. The risk/reward hinges entirely on that single piece of data.