First Majestic Silver Corp. (TSX: FR) is focused on silver and gold production in Mexico and the United States. The Company presently owns and operates the San Dimas Silver/Gold Mine, the Jerritt Canyon Gold Mine, the Santa Elena Silver/Gold Mine and the La Encantada Silver Mine.

Key Updates:

• Positive Drilling result: On May 31, 2022, the company reported positive drill results from its ongoing exploration program at the Jerritt Canyon Gold Mine located in Elko County, Nevada. This mine was acquired on April 30, 2022, and the Company has completed more than 70,000 metres in exploration drill holes consisting of step-out and greenfield targets, which is expected to increase the company’s mineral resource and would support the upcoming operations. For 2022, the Company plans to drill approximately 135,000 metres from Jerritt Canyon.

• Proposed sale of La Guitarra Silver Mine: Recently, the company has planned to sale La Guitarra Silver Mine to Sierra Madre Gold & Silver Ltd. at a consideration at ~USD 35 million along condition to closing of the Transaction that Sierra Madre would raise a minimum of CDN 10 million in a private placement concurrent with or prior to closing of the Transaction. Upon the successful completion of the transaction, FR would hold a stake of ~47% in the company. This is expected to boost the company’s overall liquidity.

• Bullish Long-term outlook of silver: The company is one of the prominent producers of silver in Canada, while the outlook of silver is likely to remain elevated in the coming years. Silver is extensively used for the Photovoltaic Solar Panels, which would find its importance for the refueling Electric Vehicles. Additionally, US Department of Energy’s National Renewable Energy Laboratory (NRLE) says about 8,000 solar carport stations would be needed to provide a minimum level of urban and rural coverage nationwide. These factors are likely to boost the silver usage in the coming days, while the company is highly poised to take advantages of it.

Risk associated with the Investment:

The company’s performance is correlated to the international silver prices, and price volatility in the commodity prices are likely to dampen the company’s income and cash flows on account of lower realization.

   Q1FY22 Financial Highlights:

     Q1FY22 Income Statement Highlights (Source: Company Report)

• FR announced its first quarter FY22 result and reported a revenue of USD 156.8 million, versus USD 100.52 million in the previous corresponding period. The increase was primarily due to elevated commodity prices.
• Mine operating earnings came at USD 15.0 million, lower than USD 28.1 million in Q1FY21, primarily attributable by higher cost of sales and an increase in depletion, depreciation and amortization.

• The company posted an operating loss of USD 2.4 million, as compared to a profit of USD 15.4 million in pcp. The period was marked by a surge in general and administrative expenses and share-based payments, partially offset by lower mine holding costs.

• FR reported a net income of USD 7.2 million, as compared to a net profit of USD 1.8 million in pcp. This was primarily due to a deferred income tax recovery amounting USD 23.2 million for the quarter v/s USD 1.8 million in pcp.

 Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

In Q1FY22, the company reported a lower cash conversion period of 45.6 days as compared to the industry median of 53.5 days. This is impressive as it indicates that the company is taking lower time to convert its investments to cash flows. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like First Majestic Silver Corp, Pan American Silver Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of FR at the last closing price of CAD 10.41 on June 01, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 01, 2022). Analysis by Kalkine Group

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

Technical Analysis Summary

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