March 13th, 2023 | 13:07 CET
First Majestic Silver, Blackrock Silver, Xiaomi - Is the silver price about to rise again?
Table of contents:
"[...] Internally we expect the resource to significantly grow the deeper we mine. [...]" Dennis Karp, Executive Chairman, Manuka Resources
First Majestic Silver - Annual loss of CAD 0.21 per share
First Majestic is a leading silver and gold producer with four producing mines. All silver mines are located in Mexico, the San Dimas silver/gold mine, the Santa Elena silver/gold mine and the La Encantada silver mine, with a combined capacity of over 10,000 tons per day. Only the Jerritt Canyon gold mine is located in Nevada. This mine, acquired in 2021 for CAD 470 million, is proving a problem, as the operating cost is significantly too high. When looking at the 2022 annual report, all silver mines made a profit, while Jerrit Canyon had to report a loss of CAD 92.3 million.
The figures were otherwise very respectable, with 31 million silver equivalent ounces produced, which represents an increase of 16% over 2021, while at the same time generating record revenues of around CAD 624 million. Increased costs are the main problem at the moment. As a result, cash flow fell 38% YOY to CAD 109.4 million. CEO Keith Neumeyer is aware of the problems. He wants to reduce costs at the Jerrit Canyon project, but at the same time, the processing plant needs to be modernized, which currently only produces 2t per day instead of the possible 5t.
In order to expand the reserves, a major drilling program of 245,000m is planned and to be implemented with 30 rigs in the middle of the year. In 2023, 33 million silver equivalent ounces are to be produced. Despite the loss of CAD 0.21 per share for the year, the Company plans to continue paying a dividend of CAD 0.0054 per share. That is down 11.5%. The shareholders sent the share on a further downward slide. Currently, the value is quoted at CAD 8.43. One should wait and see if the situation at the Jerrit Canyon project improves significantly.
Blackrock Silver - Besides silver and gold, there is now also lithium
Blackrock Silver is an exploration company that owns two silver and gold projects in Nevada. At the Silver Cloud project, a new bonanza discovery was made in early December with 56.2 g/t gold and 606 g/t silver. Following a metal sieve analysis, the gold grade was revised upward to 70 g/t gold on January 17. Permitting for a 4,000m drill program is expected in Q2 to follow up on the vein. The flagship project is called Tonopah and is divided into Tonopah West and North. The property is considered one of North America's largest historic silver districts, with millions of gold and silver ounces produced.
Tonopah West has a mineral resource estimate of 2.975 million tonnes grading 446 g/t silver equivalent or 42.65 million silver equivalent ounces. This makes it one of the highest-grade undeveloped silver projects in the world. Last year, drilling outside the zones included in the estimate uncovered a new gold and silver zone that returned the highest grade results at shallow depth. Exploration drilling at Tonopah North discovered high-grade lithium. Tearlach Resources has secured the option to earn a 70% interest in the lithium. For 51%, Tearlach must invest USD 5 million in exploration work over three years. Stage 2 will require an additional USD 10 million over the two subsequent years.
As of February 21, Tearlach has begun drilling, and a bulk sample of one to two tons is expected to be collected in Q2, along with metallurgical testing. On March 3, the Company announced it would undertake a private placement of up to CAD 7.9 million. CAD 0.37 will buy one share and half a warrant with a strike price of CAD 0.50. The money will be used to advance the operating business and for further exploration work. Due to the announcement, the share price dropped to CAD 0.34. Thus, one can currently acquire the shares cheaper than investors but not receive any warrants in return.
Xiaomi - Will it succeed in entering the e-car business?
Xiaomi Corporation is a Chinese multinational electronics company that has also made a name for itself outside of China with its extensive product portfolio, which includes smartphones, laptops, home appliances and wearables. Silver is also used in many of these devices, just as it is in the Company's newest line of business, the electric car, which it plans to put into series production in 2024. We will then see whether the business model of offering first-class products at affordable prices also bears fruit.
In addition to hardware, the Company generates revenue from Internet-based services such as online advertising and mobile apps. Xiaomi's profits from its value-added internet services have already accounted for 42% of the Company's total gross profit in the first nine months of 2022. Especially in China, user numbers are growing steadily - around 140 million Chinese use the products every month, and 563 million users worldwide. Thus, the Company has diversified its position.
However, many of the profits go into the development of the electric cars, despite the fact that the market is already highly competitive, especially in China. In 2022, the group is expected to have invested around USD 400 million in the development of the new division. In Beijing, the car factory is to be completed by the middle of the year. It will be interesting to see whether Xiaomi will succeed again in rolling up the field from behind, as it did with smartphones. One share certificate is currently available for EUR 1.37. The level is also a support area.
According to The Silver Institute & Metals Focus, the industry's current silver consumption is 1.2 billion ounces, while only 830 million ounces are produced annually. New technologies to combat climate change require more silver, such as solar energy and electric vehicles. So the outlook is good. First Majestic Silver can increase its production, but the expensive gold mine in Nevada is still causing losses. Improvements need to be made here. Blackrock Silver is not yet in production but has 2 projects with bonanza grades of silver deposits. In addition, a lithium deposit has recently been added, which is being processed by a joint venture partner. Xiaomi is consuming silver and trying to gain a foothold in electromobility. Things will get exciting here next year.
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