Exploration At Navidad And Santo Niño Will Uplift Silver Prospects

Key Takeaways

• Expanded exploration, operational efficiencies, and strong balance sheet position the company to capitalize on rising silver demand and drive sustainable long-term growth.
  
• Enhanced ESG performance and a focus on sustainability could increase investor interest and support higher silver prices and margins.
  
• Elevated costs, concentrated geographic exposure, and ambitious growth plans heighten risks to margins and earnings if expected operational improvements or higher silver prices do not materialize.

Catalysts

Engages in the acquisition, exploration, development, and production of mineral properties in North America.

• Robust year-over-year growth in silver production (up 76%) and record revenue (up 94%), combined with expanded exploration and accelerated mine development, position the company to capture higher sales volumes and benefit from potential increases in industrial and investment demand for silver, directly supporting future revenue growth.
  
• Substantial ongoing investment in exploration (e.g., 255,000 meters drilled, addition of drilling rigs, and development of large new ore bodies like Navidad and Santo Niño) is expected to extend reserve life, increase production capacity, and drive long-term revenue and cash flow growth.
  
• Operational synergies and cost savings from the successful integration of Cerro Los Gatos (including procurement consolidation and efficiency improvements through best practices and technology transfer) are likely to lower all-in sustaining costs and improve net margins and earnings over time.
  
• Demonstrated ability to maintain a strong balance sheet and internal cash generation, without reliance on external financing, enables continued reinvestment in growth projects and positions the company to capitalize on favorable macro conditions such as rising silver demand for green technologies, supporting both revenue growth and earnings stability.
  
• Upgrades in ESG scores and sustained commitment to sustainability initiatives may enhance access to capital and attract new investor interest, while tightening industry ESG standards limit new mine development globally, supporting higher silver prices and positively impacting realized prices, revenue, and margins.

First Majestic Silver Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Majestic Silver's revenue will grow by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 8.0% in 3 years time.
• Analysts expect earnings to reach $94.0 million (and earnings per share of $0.12) by about September 2028, up from $14.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $185.6 million in earnings, and the most bearish expecting $60.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 77.3x on those 2028 earnings, down from 314.2x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.51%, as per the Simply Wall St company report.

First Majestic Silver Future Earnings Per Share Growth

Risks

• Persistently high operating and capital expenditures-including increased spending on exploration, underground development, and mine fleet purchases-may pressure net margins if silver prices or production volumes do not continue growing as expected.
  
• Rising operational costs at key mines, such as noted cost creep at San Dimas and the need for ongoing investment to sustain or increase output (e.g., at Santa Elena and Gatos), could erode earnings if project efficiencies or grade improvements do not materialize as planned.
  
• Heavy reliance on assets in Mexico and concentration of operations heighten exposure to region-specific risks such as union-related cash outflows, labor unrest, regulatory changes, and local currency fluctuations; these could negatively impact revenue consistency and net earnings.
  
• Industry-wide inflationary pressures on materials, labor, and energy, as well as increasing regulatory compliance costs and ESG expectations, are likely to raise all-in sustaining costs long-term, potentially compressing profitability if not offset by significant operational efficiencies or higher silver prices.
  
• The company's ambitious growth targets and continued high exploration spending carry execution risks, including the possibility of underperformance at new ore bodies, delays in bringing discoveries (Navidad, Santo Niño, Winter) into production, or lower than anticipated resource grades, leading to potential volatility in revenue and cash flow stability.

Valuation

• The analysts have a consensus price target of CA$13.875 for First Majestic Silver based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $94.0 million, and it would be trading on a PE ratio of 77.3x, assuming you use a discount rate of 6.5%.
• Given the current share price of CA$13.08, the analyst price target of CA$13.88 is 5.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.