First Majestic Silver Corp’s Q1 Performance Comes Under The Microscope

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Written By Faith Boluwatife

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

Credits: DepositPhotos

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

Credits: DepositPhotos

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.


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