Silver prices have moved dramatically higher, but the supply response investors might expect still has not arrived.
First Majestic Silver (TSX: AG) (NYSE: AG) offers a clear example of what that means. Roughly the same production that generated $30 to $40 million in quarterly free cash flow around $32 silver later produced roughly $220 to $250 million as silver prices surged. But higher prices have not suddenly created a wave of new silver mines. Management argues that major new projects can take roughly 18 years to move from discovery to production.
In this video, we look at why the next meaningful source of silver supply may come from mines that already exist. We break down First Majestic’s exploration success at Santa Elena, more than 90 million silver equivalent ounces from recent discoveries, planned mill expansions at Santa Elena and Los Gatos, the potential restart of Jerritt Canyon, and a drilling program exceeding 300,000 metres.
We also examine why First Majestic believes its cheapest ounces are the ones it discovers itself, with exploration costs at Santa Elena of roughly $0.30 to $0.32 per ounce, and how its $1.2 billion cash position gives the company the ability to grow without rushing into expensive acquisitions.
