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Highlights
Price Performance (1-year)
Project Overview
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). Extensive vein fields with 200+ targets, and 500+ outcrop veins
NI 43-101 compliant resources totaling 208 Moz AgEq. A 2023 Preliminary Economic Assessment (PEA) focused solely on the TMU, utilizing <40% of the project’s resources, yielded an AT-NPV10% of $175M, and a high AT-IRR of 39%, using $23/oz silver vs the current spot price of $33/oz
Production and Key Operating Metrics
While Q1 production was weaker than expected, lower cash costs helped offset the impact. Metal prices were relatively flat QoQ. Recovery rates were relatively stable
Q1 production declined 8% QoQ to 240 Koz AgEq, 7% below expectations due to lower throughput and grades. We note that ±10% QoQ volatility in key production metrics is not uncommon for miners. Despite lower production, AGX was able to reduce cash costs by optimizing operations, and lowering both mining and processing expenses
The company’s vision is to expand annual production to over 6 Moz of AgEq within the next few years. Immediate plans include:
Financials
Due to lower production, revenue declined 10% QoQ, missing our estimate by 9%. However, due to lower cash costs, EBITDA turned positive, EPS improved, and margins strengthened across the board
Notably, depreciation expenses decreased significantly, driven by an increase in the resource estimate in Q1-2025. Although fund flows from operations increased, free cash flows declined primarily due to increased investment in mining equipment to support higher production
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.
While the company has limited debt, working capital was negative at the end of Q1, primarily due to $23M in payables. No outstanding options/warrants are currently in-the-money
Comparables Valuation
Junior silver producers are trading at $1.82/oz (previously $1.78/oz), while AGX is trading at just $0.36/oz (previously $0.30/oz), a 71% discount. The forward EV/Revenue of AGX is 1.90x (previously 1.40x) vs the sector average of 2.72x (previously 2.59x), a 30% discount
DCF Valuation
As Q1 production came in below expectations, we are lowering our 2025 revenue and EBITDA estimates. However, we are raising our EPS forecast, reflecting the significant drop in depreciation expenses in Q1
As a result of lower EBITDA estimates, our DCF valuation declined to C$0.66/share (previously C$0.71/share). Our valuation is highly sensitive to metal prices
We are reiterating our BUY rating, and adjusting our fair value estimate from C$0.80 to C$0.76/share (the average of our DCF and comparables valuations).
The mining industry has experienced heightened M&A activity recently, driven by record commodity prices. We expect this trend to continue as larger miners pursue strategic acquisitions to expand their portfolios. We remain bullish on silver, supported by US$ weakness, safe-haven demand, slowing global growth, and a projected fifth year of market deficit.
Risks
Maintaining our risk rating of 4 (Speculative)
We believe the company is exposed to the following key risks:
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