First Majestic Silver Corp.

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

Key Highlights:

• Favorable Macros: The company derives a major part of its revenue from silver, and the demand for the metal is likely to remain elevated in the coming days due to its application in several avenues like electric vehicles, manufacturing of Solar Panels in renewable energy etc. Additionally, as per the US Department of Energy’s National Renewable Energy Laboratory, the country would require 8,000 solar carport stations to provide a minimum level of urban and rural coverage nationwide.

Source: Company Presentation

• Bullish FY21 guidance: For FY21, the company expect its silver production between 13.00 to 13.80 million ounces, higher than 11.59 million ounces in FY20. Notably, gold production is expected in between 181 to 194 k ounces, higher than 100.081 k ounces in the previous year.

• Promising outlook from Ermitaño mine: During Q3FY21, the group conducted 45,271 tonnes of mineralized material grading 4.0 g/t gold and 41 g/t silver from the Ermitaño mine in Santa Elena. The above reported high grade Stockpiling and discovered ~59% increase in Proven and Probable Mineral Reserves of 51 million silver equivalent ounces and is likely to contribute to the future growth. Notably, the management expects its initial production in early 2022 from the above project.

Q3FY21 Financial Highlights:

• FR announced its quarterly results, wherein the company posted revenue of USD 124.646 million, as compared to USD 125.881 million in the previous corresponding period. The decline was primarily due to lower income from the silver segment (USD 43.154 million v/s USD 85.426 million in pcp).
• Mine operating earnings stood at USD 3.518 million, lower than USD 48.033 million in Q3FY20, primarily attributable by higher cost of sales and an increase in depletion, depreciation and amortization.

• FR posted an operating loss of USD 19.801 million, as compared to a profit of USD 44.339 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.

• The company reported a net loss of USD 18.406 million, as compared to a net profit of USD 30.946 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risk: The company reported a constant increase in input costs, which has resulted in higher cash costs and suppressed profitability. Continuation of the above trend would hinder the upcoming performance. 

Valuation Methodology (Illustrative): Price to CF based

Stock Recommendation:

At the end of Q3FY21, the company reported its quick ratio and a current ratio of 2.39x and 2.91x, respectively, as compared to the industry median of 1.51x and 2.64x, respectively. The above illustrates that the company has well managing its short-term liabilities with its current assets.

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) upside. For the said purposes, we have considered peers like Endeavour Silver Corp, Fortuna Silver Mines Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of FR at the last traded price of CAD 13.79 on December 16, 2021.

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

Technical Analysis Summary

One-Year Technical Price Chart (as on December 16, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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