The first quarter earnings season for the Silver Miners Index (SIL) has been an eventful period, with many silver producers facing varied challenges and opportunities. Among them, First Majestic Silver Corp.
(NYSE: AG) stands out due to its significant production profile and the intricacies of its financial performance. This analysis aims to delve deeper into First Majestic’s Q1 results, assess its valuation in comparison to other mid-sized producers, and explore the reasons why it may not currently be an attractive buy-the-dip candidate.
Q1 Production & Sales
First Majestic’s Q1 production figures paint a mixed picture. The company reported a production of approximately 5.2 million silver-equivalent ounces (SEOs), comprising nearly 1.98 million ounces of silver and around 35,900 ounces of gold.
While these figures are substantial, they also represent a 22% decline in silver production and a significant 41% decline in gold production compared to the previous year.
The decline in gold output can be primarily attributed to the cessation of production at the high-cost Jerritt Canyon asset in Q2 of the prior year.
Financial Performance
Despite the backdrop of higher metals prices, First Majestic witnessed a concerning 32% decline in revenue year-over-year. This decline was largely due to the absence of revenue from Jerritt Canyon and lower throughput from other key mines.
Operating cash flow figures for the period were also disappointing, with the company generating only approximately $12.4 million, which proved insufficient to cover the considerable capital expenditures of $28.2 million.
As a result, the company continued to maintain a net debt position, further raising concerns about its financial health and sustainability.
Costs & Margins
One of the key areas of concern for First Majestic has been its escalating costs and thinning margins. All-in sustaining costs per silver-equivalent ounce stood at $21.53/oz in Q1 2024, representing a 3% increase from the previous year.
These higher costs were driven by various factors, including lower grades at San Dimas and reduced scale at La Encantada due to limited water availability.
While the increase in the gold price contributed to stronger silver-equivalent pricing, margins remain razor-thin compared to peers, raising questions about the company’s operational efficiency and profitability.
Outlook and Valuation
Looking ahead, the outlook for First Majestic remains uncertain. While the company expects some improvement in its performance, particularly in the second half of the year, elevated all-in sustaining costs are anticipated in Q2.
However, despite these challenges, the company’s valuation continues to be a cause for concern.
Trading at over 70x FY2024 free cash flow estimates, First Majestic’s stock appears significantly overvalued compared to its peers. With relatively short mine lives and modest free cash flow projections, the current valuation may not be justified, leaving the stock vulnerable to a potentially sharp correction in the future.
Some Red Flags for Investors
While First Majestic Silver Corp. remains a significant player in the silver mining industry, its Q1 performance and current valuation raise several red flags for investors.
With declining production figures, concerning financial metrics, and escalating costs, the company faces significant challenges that could impact its long-term sustainability and profitability.
Unless there is a substantial improvement in operational efficiency, coupled with a significant increase in precious metals prices, the current valuation may not be justified, making First Majestic’s stock less attractive for investment at present levels.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
