First Majestic Expands Silver Portfolio Amid A Global Supply Deficit
FULL DISCLOSURE: This is sponsored content for First Majestic Silver Corp.
The silver market, long overshadowed by its more illustrious cousin gold, is now capturing attention as demand outstrips supply. This can be evidenced by recent major transactions in the space. First Majestic (TSX: AG) (NYSE: AG) seemingly kicked off the latest round of M&A activity, when it was announced they would be acquiring Gatos Silver (NYSE: GATO).
The transaction is billed as part of its growth strategy to expand its production and add value to its portfolio. The acquisition is expected to bolster free cash flow to over US$70 million a year, while bringing annual production to 30-32 million silver equivalent ounces.
“Every three years, we’ve done an acquisition,” notes Mani Alkhafaji, VP of Corporate Development & IR at First Majestic, in a recent interview with The Deep Dive. The company’s acquisitions, including the most recent purchase, have been part of a consistent strategy to boost silver production, which is expected to increase by 60-70% from the Gatos Silver addition alone.
Surging Demand and Market Deficits
Silver demand is reaching unprecedented levels, and supply constraints are becoming increasingly evident. The Silver Institute projects that the market will face a 215.3 million-ounce deficit in 2024, up 17% from the previous year. Demand has surged by 2% year over year, driven primarily by robust industrial needs, particularly from sectors such as electronics, electric vehicles, and solar energy.
The industrial demand for silver hit a record 654.4 million ounces in 2023, and this figure is projected to climb further in 2024. The push for green technologies, like photovoltaic (PV) solar panels and electric vehicles, underpins this growing demand. The tech sector also contributes significantly due to silver’s unparalleled conductivity and reflectivity, which are vital in electronic components.
Military demand has also emerged as a key factor in silver’s rising consumption. Its applications in defense systems—ranging from weaponry to communication devices—make silver a strategic metal with critical use in advanced technology.
The data, as reported by the Silver Institute and Metals Focus, paints a concerning picture for silver supply. While mine production is estimated at around 1 billion ounces per year, the demand continues to outpace it, resulting in deficits for three consecutive years. By 2023, this imbalance reached 543 million ounces, and the deficit is expected to persist through 2024 and beyond.
A significant point of concern is that 80% of the global silver supply is derived as a by-product from mining lead, zinc, copper, and gold. This limited availability of primary silver mines constrains the ability to increase output in response to rising demand. Moreover, new discoveries are increasingly scarce and costly, further exacerbating the supply-demand imbalance.
As Philip Newman, managing director of Metals Focus, puts it, “The deficit in the silver market serves as a strong support and foundation for the price.” Despite a 30% reduction in the deficit last year, the shortage remains substantial.
The growing gap between supply and demand has direct implications for silver prices. Historically, silver reached an all-time high of $49.51 per ounce in April 2011, and while prices have since fluctuated, the trend has been upward. Silver prices increased by 35.85% since the beginning of 2024, reflecting heightened demand and the market’s anticipation of continued deficits.
The silver-to-gold ratio is another indicator that hints at potential price shifts. The current ratio is over 88:1, far above the historical range of 40:1 to 60:1. Analysts suggest that a correction toward this average could lead to a significant rise in silver prices, especially as the market braces for prolonged supply deficits.
FULL DISCLOSURE: First Majestic Silver Corp is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover First Majestic Silver Corp on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.
Silver is moving from a precious metal to a strategic commodity, especially with its critical role in green technologies. With supply not meeting demand and few new discoveries on the horizon, I wouldn’t be surprised if we see a sustained rally in silver prices.
First Majestic making big moves… this is exactly what we need for a silver rocket. Time to load up and diamond hand it to $50+
I’ve been keeping an eye on silver for a while now, and with this deficit, it’s only a matter of time before prices spike even more. Time to load up!
Silver’s use in EVs and solar panels is underrated. People talk about gold, but silver has so much more industrial demand
When is the Gatos aquisition closing?
Its expected to close in early 2025.
See this news release:
https://www.globenewswire.com/news-release/2024/09/05/2941218/0/en/First-Majestic-Announces-Agreement-to-Acquire-Gatos-Silver.html
What will the AISC be moving forward? I mean $34 silver sounds great but are they making money?
Their official guidance for the full year 2024 is $20.36 – 21.12 (consolidated operations).
Silver squeeze 2.0 incoming, boys! We’re going to the moon! 🚀🌕 HODL those shiny bags!
First Majestic making moves again! Gatos Silver acquisition could be huge for boosting their production.
It’s hard to take this company serisouly after Jerrit, but I concede if silver runs this name has unmatched liquidity and ALWAYS runs. Watch for the hedgies to make it a MEME stock.
Silver hitting $34 today and so is first majestic. nice to finally be rewarded
It appears to be highly correlated with the price of silver. – SCS
Silver isn’t even getting mentioned by mainstream media. When CNBC starts talking silver, then it is the time to sell. Thanks for covering guys.
Yup. When CNBC starts talking precious metals is when it’s time to think about selling! – SCS
The silver deficit keeps growing.
Shaping up for 100 dollar silver. Copper names will clean up.
Keep an eye on Freeport.
A high gold to silver ratio means either gold is overvalued or silver is undervalued.
Looking like an asymmetric bet.
Kicking off M&A at the start of the bull run.
Wouldn’t be suprised to see FM buy half the sector based on how cheap all the names are.
They could. But are mostly focused on producing assets. – SCS