Sierra Madre Gold & Silver (SM.V) didn’t waste any time after acquiring the La Guitarra mine and mill from First Majestic Silver (FR.TO, AG). The company immediately started the process to reopen the mine and in hindsight, the timing couldn’t have been better. When Sierra Madre announced the acquisition, the silver and gold price was respectively $22 and $1850 per ounce and it goes without saying the current higher prices provide an important tailwind to the company.

Sierra Madre released its financial results for the first quarter of this year and as this represented the first set of financial results after it declared commercial production.

The production result in Q1

During the first quarter of the year, Sierra Madre Gold & Silver produced just under 70,200 ounces of silver as well as 1,001 ounces of gold for a total silver-equivalent output of 153,590 ounces. The company sold about 165,093 ounces of silver-equivalent, thereby reducing the inventory on hand.

The average realized sales price was $31.13/oz for the silver and $2828 for the gold, resulting in an average realized silver-equivalent price of $31.68. The AISC per silver-equivalent ounce was just under $29 which means it has been trending down from the $32.18 per ounce in Q4 2024 and this should continue to trend down as the mining and processing operations get more sufficient, the sustaining capex will decrease and as Sierra Madre has now started mining the Coloso vein system which has 1.7x higher average silver grade.

The company is providing the AISC on a silver-equivalent basis, but it’s easy enough to try to calculate it on a silver-only basis. We know the all-in sustaining production cost was $4.78M and we know the 1022 ounces of gold that were sold at $2828, generating about $2.9M in by-product credits. This means the net all-in sustaining costs were about $1.88M and divided over the 75,137 ounces sold, the all-in sustaining cost per ounce on a by-product basis was approximately $25/oz after deducting the gold-related revenue as a by-product credit.

But the Q1 financials also show us the majority of the revenue comes from the gold. So if we’d make the opposite calculation and deduct the $2.34M in silver-related revenue from the equation, the total attributable all-in sustaining cost was approximately $2.44M for the 1022 ounces of gold, for an AISC of just under $2400/oz (if you’d use gold as primary metal and deduct the silver-linked revenue as a by-product credit).

Commercial Production From The Guitarra Mine Started Jan 1, 2025

The numbers

As this is the first quarter of commercial production, the company’s financial statements are now finally reflecting the production status. As the income statement below shows, Sierra Madre generated a total revenue of US$4.84M in the first quarter, on which it generated a US$1.24M gross profit.

And as you can see above, the company was actually profitable. After deducting the almost US$130,000 in taxes from the pre-tax income, the company reported a net profit of just over US$335,000, representing approximately 0.3 cents per share when converted from US Dollars into Canadian Dollars.

Sierra Madre reported an operating cash flow of just under US$535,000, but as you can see, it needed about US$1M in working capital due to increased receivables while it also saw its cash balance increase after running up the accounts payable and the fact that it didn’t make the cash tax payment yet.

On a working capital neutral basis, the adjusted operating cash flow was US$0.76M.

The total amount of cash spent on capex was approximately US$0.6M, resulting in a net free cash flow of approximately US$0.16M. Keep in mind a portion of the capex consists of capitalized exploration.  The other investments were related to the acquisition of mining and mobile equipment as well as the refurbishment of certain underground equipment. The company purchased a number of surface trucks and large machinery including; a backhoe, scoop tram and excavator. The company had (has) a significant portion of the mining fleet currently rented. Every piece of machinery purchased significantly lowers operating costs. Once the company converts fully to their own fleet at a cost of approximately USD $900,000, the all in sustaining cost per once could decrease by a few dollars on a silver-equivalent basis. This is expected to occur of the coming months as cashflows allow.

Surprisingly, the company spent less than US$65,000 on ‘mine development costs’ in the first quarter although it had been working on gaining access to the Coloso vein structure, as per a recent update. To date, the majority of mine development cost has been included in the current mining costs and has been expensed rather than capitalized. As the company fully catches up on development; including the recently reactivated Coloso, again AISC costs should continue to trend downwards.

Also keep in mind the US$160,000 in adjusted free cash flow is on the consolidated level; it includes all expenses incurred on the Canadian level as well. This also includes the quarterly interest expenses of around US$0.2M per quarter which means that once the company will be in a position to repay the construction loan provided by First Majestic, its free cash flow could double overnight.

At the end of the first quarter, Sierra Madre had a positive working capital position of approximately US$2.2M, an increase of around US$0.2M compared to the end of 2024.

Conclusion

Sierra Madre’s financial statements indicate the company was profitable and generated a positive free cash flow (adjusted for working capital items). Given the higher gold and silver prices (so far) in the current quarter and considering the company has disclosed it is now accessing and processing material from the higher grade Coloso zone, we are already looking forward to seeing the Q2 results on both the operational front and the financial front.

One of the next catalysts should be to continue to purchase mining equipment, which greatly reduces costs. This will boost the free cash flow and provide Sierra Madre with even more opportunities to reinvest in the business for possible plant expansion.

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Disclosure: The author has a long position in Sierra Madre Gold & Silver. Sierra Madre is a sponsor of the website. This report is for educational purposes only; be mindful investing in junior mining stocks is risky and you may lose your entire investment if things go wrong. Please read our disclaimer.

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