First Majestic Silver Corp.

First Majestic Silver Corp. (TSX: FR) is a mining company, which produces metals such as silver and gold and has mines in Mexico. The company is also pursuing several exploration and development activities across the North America region.

Key Highlights:

• Strong Production Outlook: With the acquisition of Jerritt Canyon Gold Mine, the company expects a surge in production in FY21, which is encouraging. Over the years, the group reported elevated production level, which indicate resilient operations. Notably, Jerritt Canyon Gold Mine has a processing capacity of 4,500 tonnes per day, while it has produced 112,749 ounces of gold in 2020.

Production Outlook without Jerritt Canyon acquisition (Source: Company Presentation)

• Operation Update: During the first quarter of FY21, the group executed 13,707 metres of underground development, higher than 12,004 metres in Q4FY20. Moreover, the group is also focusing on the diamond segment and reported 39,552 metres of drilling in Q1FY20 and 57,147 metres in Q4FY20, respectively. This is encouraging, and a positive result would lead to improve business prospects for the group.
  

• Bullish long-term outlook of Silver: The demand for silver is likely to remain elevated in the coming days, supported by growth in industrial activities, growing penetration of 5G technology in consumer electronics, coupled with higher demand from the Electric Vehicles segment. Moreover, higher usage of silver from the automotive industries are likely to support the future demand.                

Q1FY21 Financial Highlights:

• FR announces its quarterly result, wherein the company posted revenue of USD 100.522 million, increased from USD 86.065 million in the previous corresponding period. The increase was driven by higher Ore processed/tonnes milled of 614,245, higher than 599,142 in the previous corresponding period (pcp).
• Mine operating earnings surged to USD 28.116 million, from USD 21.115 million in Q1FY20. The increase was primarily driven by higher revenue, partially offset by a higher mine operating cost.
• Operating earnings jumped to USD 15.490 million, as compared to USD 0.394 million in pcp. The quarter witnessed a surge in general and administrative expenses and share-based payments, while mine holding costs remained lower than the previous corresponding period.
• The company turned profitable and reported a net earnings of USD 1.855 million, as compared to a net loss of USD 32.436 million in pcp.       

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: Volatility in the international gold and silver prices are likely to affect the company’s income, cash flows and margins. Lower than expected synergies from the new acquisitions would act as a setback and might take a toll on the company’s overall financial performance.

Valuation Methodology (Illustrative): EV to EBITDA based

Stock Recommendation:

Despite having a capital-intensive operation, the company reported a healthy balance sheet and posted its D/E ratio of 0.18x. Notably, the D/E ratio below one is regarded as a healthy sign. The majority of the revenue comes from the silver, and growing demand for the commodity augurs well for improved performance for the company. Based on technical analysis, the stock has support at CAD 14.7 level. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like Endeavour Silver Corp, MAG Silver Corp, and Altius Minerals Corp. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 17.59 on July 12, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

One-Year Technical Price Chart (as on July 12, 2021). Source: REFINITIV. Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.