The world economy is in the process of beginning to recover from the Covid-19 pandemic, but getting out of this economic crisis will be very different from the other recoveries we have seen in recent history. Many analysts are complaining that it has never been so difficult as it is now to make predictions about when the gross domestic product will return to pre-pandemic levels, when the labor market will stabilize and how much inflation will affect the value of economic activities and financial assets.
In a situation like this, investors often choose to allocate more portfolio space for investments in safe-haven assets. The precious metal represents the most popular global safe-haven assets, and both silver like gold, provide a good degree of protection to the value of assets.
As of the writing of this article, silver futures for September 21 (ZIU1) are trading at $26,152 per troy ounce, down about -1.65% so far this year. However, driven by investments in photovoltaics, more production of consumer electronics and higher electrification in the automotive industry, the demand for silver is expected to increase sharply in the second half of 2021 and in 2022. The price per ounce is thus expected to have a strong upward momentum.
Looking ahead, economists estimate that the price of an ounce of silver will trade at around $34.50 by the end of the first half of 2022, reflecting a rise of more than 30% from current levels.
Now is the time to think about what to do to take advantage of future increases in the price of the commodity. One way to do so is by buying shares of First Majestic Silver Corp (AG, Financial), a Vancouver, Canada-based mining company with silver and gold properties in Mexico.
The miner enjoys resilient operating activities. In fact, during Covid-19, while many other operators had to deal with poor performance, First Majestic instead supplied the silver demand with a strong output of 11.6 million ounces, above guidance, maintaining the all-in sustain cost (AISC) below $14 an ounce. As a result, the generation of cash flows has improved tremendously on increased efficiency of operations. On a per-share basis, cash flow was $0.50 in 2020, below the pre-pandemic level by only 4 cents.
The miner also mined nearly 100,100 ounces of gold last year. However, the largest part of the income, approximately 65% of the total, derives from silver mining and exploration activities.
First Majestic Silver Corp could therefore lift up cash reserves to approximately $235 million, allowing it to finance a wider range of exploration activities on available mineral resources and to better define the silver projects in the pipeline from an economic standpoint.
The company has 268.6 million ounces of silver equivalent stored in mineral resources and 121.5 million ounces of silver equivalent in proven and probable mineral reserves grading 417 grams of silver per ton of ore.
For full year 2021, the company plans to benefit from the favorable cycle of silver prices with production around 22 million ounces of silver equivalent. Therefore, it is reasonable to expect an increase in revenues and profits, which should give a strong boost to the share price.
The share price was around $15 in early trading on Thursday, up 5.41% so far this year, for a market capitalization of $3.81 billion.
The 52-week range is $9.33 to $24, the enterprise-value-to-Ebitda ratio is 26.7 versus the industry median of 11.02, and the price-book ratio is 3.86 versus the industry median of 2.51.
The 50-Day Moving Average is 16.94 and the 200-Day Moving Average is 16.13. The 14-day Relative Strength Indicator yields 32, meaning that the stock is not far from oversold levels.
Wall Street analysts recommend two buys and two hold ratings for this stock.
Disclosure: I have no positions in any security mentioned.
