First Majestic Silver Corp. (TSX: FR) is a mining company, focused on silver production in Mexico and is aggressively pursuing the development of its existing mineral property assets. The Company presently owns and operates the San Dimas Silver/Gold Mine, the Santa Elena Silver/Gold Mine and the La Encantada Silver Mine.

Key highlights

• Achieved record production in FY 2021: The company’s total production for the full year 2021 hit a new high of 26.9 million silver equivalent ounces, consisting of 12.8 million silver ounces and 192,353 gold ounces, a 32% increase over 2020. Even the Q4 2021 production, stood at 8.6 million silver equivalent ounces, comprised of 3.4 million silver ounces and 67,411 gold ounces, setting a new quarterly record, indicating a 17% increase over the previous quarter.

• Robust guidance for FY2022: The business also foresees a growth of 30% in its consolidated production in FY 2022, compared to 2021 and would produce 32.2 to 35.8 million silver equivalent ounces in 2022, consisting of 12.2 to 13.5 million ounces of silver and 258,000 to 288,000 ounces of gold, with AISC cost guidance of between USD 16.79 to USD 18.06 per silver equivalent ounce.

 Source: Company Presentation

• 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

Risks associated with investment

The performance of the company is directly correlated with the metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance. Moreover, 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.

Financial overview of FY 2021 (In 000 of USD)

Source: Company Filing

• The company generated record annual revenues of USD 584.1 million in 2021, 61% higher than the previous year primarily due to the addition of the Jerritt Canyon Gold Mine during the second quarter coupled with a 32% increase in payable silver equivalent ounces sold and 19% increase in the average realized silver price.

• In 2021 the company recognized mine operating earnings of USD 101.4 million compared to USD 105.1 million in 2020. The decrease in mine operating earnings was primarily driven by higher costs at Jerritt Canyon to prepare the mine for higher throughputs and improved plant performance.
• In the reported period the company’s operating earnings stood at USD 49.2 million, compared to USD 40.3 million in pcp. The period was marked by a surge in general and administrative expenses and share-based payments.

• FR reported a net loss of USD 4.9 million in FY 2021, compared to a net profit of USD 23.0 million in pcp., primarily due to higher income tax expense.

Valuation Methodology (Illustrative): EV to EBITDA based

Stock recommendation

The Company generated record revenues totaling USD 584.1 million in 2021, primarily due to the addition of the Jerritt Canyon Gold Mine during the second quarter, coupled with increase in payable silver equivalent ounces and higher average realized silver price.

Moreover, the company's morale has been bolstered by these results, and it has provided a strong guidance for FY2022, stating that it intends to produce 32.2 to 35.8 million silver equivalent ounces, which is a significant positive. Additionally, the demand for silver is likely to increase, owing to its widespread use in a variety of industries. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 16.59 as on April 07, 2022. Additionally, the 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 April 07, 2022). Source: REFINITIV, Analysis by Kalkine Group

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.