An Emerging Silver Producer Poised to Quadruple Production

• We are resuming coverage on Silver X. The company owns the Nueva Recuperada project in Peru, which features an active silver-polymetallic mine. Nueva Recuperada is comprised of the producing Tangana mine, the advanced-stage Plata mining unit, and four exploration projects.
• Earlier this week, the company released an updated resource estimate of 208 Moz AgEq (silver equivalent) across the Tangana Mining Unit (TMU), and the Plata Mining Unit (PMU), reflecting a 40% increase from the previous estimate completed in 2022. The TMU comprises 70% of the total estimate.
• A 2023 Preliminary Economic Assessment (PEA) on the TMU returned promising economics, with an After Tax-NPV10% of $175M, and a high AT-IRR of 39%, using $23/oz silver vs the current spot price of $31/oz. AGX is trading at just 21% of its AT-NPV.

• The company commenced commercial production in January 2023. In 2024 (9M), the mine produced 0.8 Moz AgEq, up 34% YoY. Management aims to reach annual production of 6 Moz by 2028 ($186M in revenue based on the current spot price).
• In 2024 (9M), revenue was up 41% YoY, EBITDA turned positive, and net loss was down 16% YoY, driven by higher production and metal prices, and lower cash costs. Management plans to begin production at the PMU in 2026.
• We believe there is significant resource expansion potential, with multiple veins not yet included in the current resource.
• AGX is trading at just $0.30/oz vs the junior silver producers’ average of $1.50/oz, an 80% discount. 
• The mining industry has seen increased M&A activity in recent months due to record commodity prices. We expect \
• M&A activity to remain robust this year as larger miners expand their portfolios through strategic acquisitions.

Price Performance (1-year)

Portfolio Summary

Operates an active mine, and multiple development/ exploration projects in Peru. Peru is the third largest silver producer in the world 

The Nueva Recuperada project is comprised of the producing Tangana mine with a 720 tpd processing plant, and the advanced-stage Plata mining unit, and four exploration projects (Tangana Brownfield, Plata Brownfield, Victoria HS Gold, and Red Silver).

Silver X acquired Nueva Recuperada in 2017, and added the high-grade Tangana asset from Pan American Silver (NYSE: PAS) in 2018 

Located in the Huacholcolpa mining district, 225 km southeast of Lima, the fully-permitted project covers 20,472 hectares

Access to water (Pallcapampa river) and electricity

Nueva Recuperada has hosted artisanal miners for over 60 years. The previous owner, Compañía de Minas Buenaventura (NYSE: BVN / MCAP: $3.3B), produced 3.8 Mt of ore from 1957 to 2013. 

Mineralization, Resources and PEA

The property hosts low to intermediate sulfidation epithermal vein deposits. Prior exploration has delineated 200+ targets, and 500+ outcrop veins, potentially hosting medium to high-grade silver-rich polymetallic mineralization. The current resource, totaling 208 Moz AgEq, is distributed across the producing TMU, and the advanced-stage PMU. Silver is the dominant metal, accounting for 52% of the total value of the contained metals.

Extensive vein fields with 200+ targets, and 500+ outcrop veins 

NI 43-101 compliant resources totaling 208 Moz AgEq 

The TMU accounts for approximately 70% of the current resource estimate. Four veins account for the majority of the resources at the TMU

We believe resources remain open at depth

A Preliminary Economic Assessment (PEA) focused solely on the TMU, based on a 12-year mine life, and average annual production of 4.2 Moz AgEq, yielded promising results. We believe the study was conservative, as it utilized <40% of the project’s resources.

Given the existing infrastructure in place, the project has a low initial CAPEX of $61M, which involves expanding the processing plant to 1,500 tpd

AT-NPV10% of $175M, and a high AT-IRR of 39%, using $23/oz silver vs the current spot price of $31/oz

Production

The company commenced commercial production in January 2023. Silver X is currently mining the Tangana Main vein area, which represents just 5% of the TMU resource estimate. 

Over 200 veins and splits have been identified at TMU, but only 18 were included in the PEA, highlighting the growth potential at Tangana

In 2024 (9M), ore processed was up 41% YoY to 129 Kt. The average grade was up 7% YoY to 255 gpt AgEq

Production was up 34% YoY to 0.84 Moz AgEq. Cash costs were down 11% YoY to $18/oz AgEq

In 2023, production was up 3% YoY to 0.92 Moz Ag Eq.

In Q3-2024, production declined 9% QoQ, and cash costs increased 14% QoQ, due to lower grades

Production and cash costs improved  significantly on a YoY basis

We believe there is significant resource expansion potential, with the property’s three main units (Tangana, Plata, and Red Silver) hosting multiple veins not factored into the current resource

The company’s vision is to expand annual production to over 6 Moz of AgEq within the next few years. Immediate plans include:

• Complete an updated PEA integrating the Plata and Tangana units by Q2 2025.
• Advance the PMU to production in 2026
• Evaluate the feasibility of expanding the current processing plant from 720 tpd to 1,500 tpd
• Update the Environmental and Social Impact Assessment (ESIA) to support a potential 1,500 tpd operation 
• Secure permits to build a new 1,500 tpd processing facility, bringing the total production capacity to 3,000 tpd.

Financials 

In 2023, revenue was up 13% YoY, and net losses were down 32% YoY, driven by higher production, and metal prices

In 2024 (9M), revenue was up 41% YoY, EBITDA turned positive, and net losses were down 16% YoY, driven by higher production and metal prices, and lower cash costs 

Margins improved across the board

Although funds flow from operations increased, free cash flows declined primarily due to increased investment in mining equipment to support higher production 

While the company has limited debt, working capital was negative at the end of Q3-2024, primarily due to $20M in payables

 AGX is currently pursuing a C$3M equity financing

Although AGX’s negative working capital is a concern, we believe it should be able to extend payables, and/or secure debt financing this year, given its strong production growth plan

Comparables Valuation

Junior silver producers are trading at $1.5/oz. AGX is trading at just $0.30/oz, an 80% discount

Applying the sector average multiple of $1.5/oz, we arrived at a fair value estimate of C$1.21/share 

DCF Valuation 

Our DCF valuation is C$0.75/share

Our valuation is highly sensitive to metal prices

We forecast a significant boost in revenue and EPS for 2025, driven by AGX’s ability to ramp up production

We are resuming coverage with a BUY rating, and a fair value estimate of C$0.98/share (the average of our DCF and comparables valuations). We believe AGX offers a compelling value proposition, driven by its substantial resource growth, ability to ramp up production quickly, and significant discount to peer valuations. 2024 marked a turning point for the company, with EBITDA turning positive. We anticipate a significant boost in revenue and EPS in 2025.

Risks

Assigning a risk rating of 4 (Speculative)

We believe the company is exposed to the following key risks:

• Metal prices
• Exploration and development
• FOREX
• Negative working capital
• The upcoming PEA might not be promising

APPENDIX