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:

• Impressive mineral reserve from the 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 group reported high grade Stockpiling and discovered ~59% increase in Proven and Probable Mineral Reserves of 51 million silver equivalent ounces, which is likely to contribute to the future growth. As per the management, the company would conduct its initial production during early 2022.
  

• Bullish industry scenario: Majority of the company’s revenue comes from silver, and the demand for the above metal is likely to remain elevated in the coming days supported by its abundant usage across several industries 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

• RSI hovering at an oversold zone: On a daily chart, the 14-days RSI of FR stock is hovering at an oversold zone of 39.55, which indicates a possible upside from the current level. Moreover, the stock of FR is trading near the lower range of the 20-days Bollinger band, which also indicates a probable price appreciation.

Technical Price Chart (as on December 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

Q3FY21 Financial Highlights:

• FR announced its quarterly results and reported a revenue of USD 124.646 million, versus USD 125.881 million in the previous corresponding period. The slide 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 came 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.

• The company 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.

• FR 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:

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 koz, higher than 100.081 koz in the previous year. 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 Altius Minerals Corp, Pan American Silver Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of FR at the last traded price of CAD 13.78 on December 29, 2021.

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

Technical Summary Analysis

One-Year Technical Price Chart (as on December 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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