The torrid rise of gold has dominated the headlines for precious metals, yet silver prices are also shooting up, marking an incredible rise of over 62% year-to-date. Moreover, 2024 marks the fifth year in a row where demand for silver has outpaced supply due to rocketing industrial demand. Unlike other peers in the industry, mining company First Majestic Silver (NYSE:AG) struggles to shine in this hot scene.
The stock is only up 1.23% over the past year. While it trades at a discount, investors might want to look for better alternatives for exposure to the sector until the company can demonstrate substantial improvement.
Recent Developments at First Majestic Silver
First Majestic Silver is a company focused on developing and producing silver and gold in North America. It holds significant assets across Mexico, including the San Dimas mine in Durango State, the Santa Elena in Sonora State, and the La Encantada in Coahuila State.
A key facet of the company’s growth strategy involves increasing production and strengthening its core mining assets. The 2024 San Dimas Silver/Gold Mine exploration program has yielded promising results. Notably, observed mineralization of gold and silver, extended known veins, and the discovery of new prospects point towards the potential for resource expansion and upsizing Mineral Resources to Reserves.
Branching out from its primary operations, First Majestic has recently launched a minting facility (manufacturing coins to be used as currency) in Nevada. This facility, producing eco-friendly, investment-grade silver bullion, plans to expand to meet product demand, which comprises ‘First Strike’ collectible bars and one-ounce rounds targeting investors and collectors.
First Majestic Silver’s Financial Results & Outlook
The company recently reported its financial performance for the first quarter of 2024. Production of 5.2 million silver equivalent ounces drove revenue of $106.01 million, a significant decline from $157 million posted the same quarter in 2023 and falling short of analysts’ expectations of $109.00 million. This decrease in revenue is primarily attributed to the temporary suspension of mining activities at Jerritt Canyon Gold Mine in the previous year.
Despite this, the firm improved its mine operating earnings to a loss of $0.3 million from a loss of $6.4 million in Q1 the prior year. Operating cash flows, before adjustments, amounted to $12.6 million.
The company improved in terms of cost reduction, with consolidated cash costs of $15.00 per silver equivalent ounce and All-in sustaining costs (AISC) of $21.53 per ounce, denoting a decrease of 1% and an increase of 3%, respectively, compared to Q1 of 2023. However, earnings per share (EPS) of -$0.06 fell short of analysts’ estimates of -$0.05.
At quarter-end, the company reported cash and a restricted cash balance of $229.3 million. Furthermore, a dividend payment of $0.0037 per common share was declared for Q1 2024, though this marked a -22.9% decrease from the prior dividend of $0.0048.
Management is optimistic about the company’s future performance. Improvements are anticipated in the latter half of 2024 due to planned higher ore grades and throughput rates. It offered guidance for the total production of 8.6 million to 9.6 million silver ounces and 21.1 million to 23.5 million silver equivalent ounces at a projected AISC of $19.32 to $20.68 per ounce.
What Is the Price Target for AG Stock?
AG has been volatile over the past year, dropping 25% in the first six months, rebounding 88% in the next two months, and then declining another 16%. The shares trade toward the middle of their 52-week price range of $4.16 – $8.44 and show negative price momentum, trading below their 20-day (6.36) and 50-day (6.47) moving averages. With a P/B of 1.4x compared to the Silver industry average of 2.1x, the stock trades at a relative discount to industry peers, likely reflecting a lack of enthusiasm for the company’s current state.
Analysts covering the company have taken a cautious approach to the stock, with 2 Hold and 1 Buy recommendations. Overall, First Majestic Silver is rated a Moderate Buy with an average price target for AG stock of $7.44, representing a potential upside of 12.90% from current levels.
Final Analysis of AG Stock
While First Majestic Silver presents promising growth opportunities, including expanding production and strengthening core mining assets, it has underperformed thus far. Despite promising exploration programs and the launch of a minting facility targeting investment-grade silver bullion, First Majestic needs to demonstrate significant improvement in translating those opportunities into earnings.
Moreover, with its Q1 2024 financial performance showing a revenue drop, it’s evident that the company has to maneuver significant challenges ahead. However, management remains bullish about the future, banking on improvements in the latter half of 2024. Considering the stock’s relative discount to industry peers, investors might consider other options until First Majestic Silver can provide tangible evidence of substantial improvement.
