First Majestic Silver: Significant Growth On Deck

First Majestic Silver: Significant Growth On Deck

gchapel/iStock via Getty Images We’re nearing the end of the Q4 Earnings Season for the Silver Miners Index ( SIL ) and one of the last companies to report its results is First Majestic Silver (NYSE: AG ). Overall, the company had a solid year from a production and sales standpoint, reporting a 32% growth in annual silver-equivalent ounce [SEO] production and a more than 60% increase in revenue. If ahead to FY2022, this growth is set to continue. However, while First Majestic has one of the highest projected earnings growth rates, much of this looks priced into the stock, with AG trading at more than 33x FY2023 earnings estimates. First Majestic Silver Operations (Company Presentation) First Majestic Silver released its Q4 and FY2021 results last week, reporting quarterly production of ~3.36 million ounces of silver and ~67,400 ounces of gold. This marked the company’s highest gold production on record, helped by increased gold production from Ermitano, a huge quarter from San Dimas, and a significant contribution from the company’s new Jerritt Canyon Mine in Nevada (~23,700 ounces). The solid finish helped to push annual gold production to ~192,000 ounces, a more than 40% increase from pre-COVID-19 levels (FY2019). Let’s take a closer look below: First Majestic Silver – Quarterly Production (Company Filings, Author’s Chart) As shown above, First Majestic finished the year strong, and 2021 was a year of several records. In addition to record gold production in Q4 and FY2021, silver-equivalent production hit a new record of ~8.4 million SEOs (75 to 1 ratio) in Q4 and nearly 27 million SEOs for the year. The major contributor to the increase in production was Jerritt Canyon, which contributed nearly 69,000 ounces last year. However, the strength was broad-based and should continue in FY2022, with San Dimas having a solid year (~13.5 million SEOs) and Ermitano now in production (Santa Elena), which contributes to higher production at lower costs. First Majestic Silver – Annual Production & Forward Guidance (Company Filings, Author’s Chart) If we look at First Majestic’s annual production, we can see that silver production was up 15% year-over-year but missed guidance at ~12.8 million ounces vs. a ~13.4 million-ounce guidance mid-point. The good news was that gold production more than made up for this, coming in at ~188,000 ounces, up 88% year-over-year. As noted previously, this growth was not entirely organic, given that Jerritt Canyon contributed more than 60% of this growth, which cost the company more than 20% share dilution. However, we did not see a full contribution from Jerritt Canyon in 2021 (April 2021 deal close), which is one reason why significant growth is on deck in FY2022.

Based on First Majestic’s current guidance, the company expects to increase gold production by more than 45% year-over-year to ~273,000 ounces if it meets its guidance mid-point, while silver production will dip slightly. Combined with the recent strength in gold prices, this is expected to translate to significant revenue growth and meaningful growth in annual EPS. However, it’s important to note that even in FY2022, with guided production of ~122,000 ounces at Jerritt Canyon, the Nevada operation will be running at nowhere near its full potential.

As discussed in previous updates, Jerritt Canyon may look like an ugly duckling based on current operations, with all-in sustaining costs coming in at $2,077/oz in Q4 and costs expected to come in above $1,500/oz in FY2022. However, it’s important to point out that the company spent heavily in H2 2022, with a $10.4 million TSF lift and roaster upgrades. Still, even in FY2022, the operation will be running well below its full processing capacity of 4,000 tonnes per day, a figure that is 60% above the current rate. Jerritt Canyon Operation (Company Presentation) Assuming the company can utilize this excess processing capacity either through higher mining rates or using third-party ore, we should see costs improve significantly at the asset. The company is also looking at ways to improve metallurgical recoveries, an area where the company has seen success at its Mexican operations in the past (high-pressure grinding mills). There’s no question that the costs at the operation will still be high. Still, I don’t see any value in judging Jerritt Canyon based on its Q4 2021 or H2 2021 results, given that capital spend was lumpy, and the mine was operating well below its true potential. Jerritt Canyon – Exploration Targets (Company Presentation) Obviously, these improvements may not come to fruition, and this is a risk that investors must be comfortable […]

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