First Majestic Silver Q2 Earnings Review
As we near the end of the Q2 earnings season for the precious metals sector, First Majestic Silver reported its results, which were not as positive as expected. The company saw a decline in revenue year-over-year, primarily due to the halt in production at Jerritt Canyon. Additionally, free cash flow was negative, and there was a significant increase in share issuance, diluting shareholders.
Q2 Production and Sales
First Majestic reported a decrease in silver and gold production in Q2-24, resulting in lower revenue despite higher metal prices. The decline in production at San Dimas was mainly due to operational issues and transitioning to lower grade areas of the mine. However, Santa Elena showed an increase in silver production with higher throughput and grades, offsetting some of the losses.
Insight:
Despite the challenges faced in Q2, there is potential for improved production in the second half of the year, especially at San Dimas and La Encantada. This optimistic outlook could help boost revenues in the coming months.
Costs and Margins
First Majestic reported higher costs in Q2-24, leading to lower AISC margins compared to the previous year. The company expects improved AISC in H2-24, but challenges at San Dimas may impact results in Q3.
Insight:
The rising trend in the US Dollar against the Mexican Peso could affect AISC margins in the future, highlighting the need for cost management and efficiency improvements.
Recent Developments
First Majestic’s exploration success at Santa Elena with the discovery of Navidad vein shows potential for resource growth and reserve replacement. However, the company still faces risks associated with operating in Mexico, including potential mining reforms that could impact operations.
Insight:
The discovery of Navidad vein is a positive development for First Majestic, but ongoing uncertainties in the Mexican mining industry may pose challenges in the future.
Continued Share Dilution
First Majestic’s consistent share dilution remains a concern for investors, with share count increasing by ~5% year-to-date. Despite higher metals prices, the company continues to issue shares, affecting shareholder value.
Insight:
Investors should closely monitor the company’s share issuance practices, as excessive dilution can impact future returns and shareholder value.
Valuation
First Majestic trades at a premium valuation compared to its peers, despite its weaker track record of per share growth and operational challenges. The stock is considered overvalued based on P/NAV and EV/FCF multiples, making it less attractive for investors.
Insight:
Investors looking for exposure to silver should consider alternative options with better valuation metrics, such as Triple Flag Precious Metals, which offers a superior business model and diversification.
Conclusion
First Majestic’s Q2 performance reflects ongoing challenges in production, costs, and share dilution. While there are some positives in terms of exploration success and potential future growth, the company’s current valuation and operational issues warrant caution for investors. Patience and careful monitoring of developments are recommended before considering an investment in First Majestic.
