Sierra Madre Gold and Silver Ltd.'s (SM:TSX.V; SMDRF:OTCQX) latest financial and operating data show that management successfully navigated the test mining and ramp-up phase at its La Guitarra project in Mexico, confirming a key derisking event, reported Oliver O'Donnell, natural resources analyst at VSA Capital, in an April 24 research note.
"Narrowing to effectively break even in only the second quarter of operations is an impressive achievement, in our view," O'Donnell wrote.
128% Return Potential
Sierra Madre's current share price is about CA$0.57 per share, noted O'Donnell.
"In recent months, the stock price has remained within a broad trading range with the market awaiting updates on the ramp-up and although yet to break out to reflect the acceleration in precious metal price gains, is building a steady uptrend," the analyst added.
VSA Capital's target price on the Canadian silver producer is CA$1.30 per share, implying a potential return for investors of 128%.
Sierra Madre remains a Buy.
The stock's 52-week range is CA$0.37–0.65 per share. There are 153.9 million shares outstanding. Major shareholders are First Majestic Silver Corp. (AG:TSX; AG:NYSE; FMV:FSE) with 44.9%, Commodity Capital with 4.4% and Sierra Madre Chief Executive Officer and President Alex Langer with 2.7%.
2024 Financial Recap
O'Donnell reviewed the company's results for 2024, in which test mining at La Guitarra began midyear. Sierra Madre generated US$6.5 million (US$6.5M), in line with VSA Capital's US$6.8M estimate, from sales of 230,000 ounces of silver equivalent (230 Koz of Ag eq). Gross profit for the year was US$1.4M, with Q4/24 responsible for US$1.1M of the total.
Also during this quarter, revenue was US$3.9M, 55% higher than that of Q3/24. During the period the company sold 59 Koz of silver and 897 ounces of gold, reflecting 21% and 66% quarter-over-quarter increases, respectively.
Sierra Madre posted a net loss of US$38,000 (US$38K) for Q4/24 and a net loss of US$4.1M for 2024. Capex spent was about US$1.7M, mostly for new equipment, but the company kept this expense low by leasing.
Having managed working capital through the hardest ramp-up phase successfully, noted O'Donnell, Sierra Madre ended 2024 with US$45K in cash. The company held inventory into 2025 and sold it soon after, thereby strengthening its cash position. January sales were 349 dry metric tons of concentrate, a 10% increase over November 2024 sales.
Significant Development Progress
O'Donnell reported what Sierra Madre achieved at La Guitarra in terms of development. The company refurbished the plant and shortly after year-end, achieved commercial production. Now, crushing, grinding and flotation all are being done at commercial rates. Still, some further capacity, beyond 500 tons per day, remains.
Additionally, Sierra Madre made significant progress on mine planning and other development work, according to management, which, noted O'Donnell, "is key to demonstrating the ability to deliver consistent and predictable production at the commercial run rate."
2025 Outlook Positive
Sierra Madre's Q1/25 results, due out in May, should show additional progress, O'Donnell wrote.
"We expect the combination of consistent commercial production and higher prices to take the company into profit," O'Donnell wrote, noting VSA Capital's EBITDA forecast for Sierra Madre for this year is US$9.5M. "We expect strong earnings performance in 2025, translating to further share price gains."
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