First Majestic Meets Estimates As Year-Over-Year Gains Hide A Third Straight Quarterly Slide And A San Dimas Strike

First Majestic Silver (TSX: AG) reported third-quarter adjusted earnings of $0.19 per share, exactly matching the consensus estimate. Earnings grew 171.4% year over year, and revenue of $394.11 million rose 38.3%. Those comparisons look strong, but they measure the quarter against a much lower silver price a year ago. The more important trend is sequential, and it is moving the wrong way. Revenue has fallen from $477 million in Q1 to $416 million in Q2 and $394 million in Q3. Cash flow per share has dropped from $0.63 to $0.50 to $0.43 over the same three quarters. Realized silver was $61.52 an ounce, well above the $38.78 of a year ago but sharply below the $86.35 the company realized in Q1. That is the central tension: the year-over-year story remains excellent while the business is shrinking quarter by quarter.

The quality of the quarter is mixed. GAAP EPS was $0.15, below the adjusted figure, mainly because of a $30.7 million one-time charge to settle a legacy Mexican tax dispute at La Encantada. EBITDA rose 78% to $228.8 million. That gain had help from $19.3 million of investment income, compared with a $5.4 million loss a year earlier. Free cash flow fell 14% year over year to $85.5 million, for two reasons:

• capital spending more than doubled to $108.0 million, including $41.9 million for the Jerritt Canyon restart;
• the company paid $73.7 million in cash taxes and settlements.

About $54.1 million of silver and gold also sat in inventory rather than revenue. That gives Q4 a modest cushion if the metal is sold.

The operating trend is weaker than the headline margin figure suggests. The AISC margin widened to $31.95 per ounce from $18.14 a year ago, but higher prices did that work. The mines did not.

• **Production:** Silver output fell 11% to 3.44 million ounces and gold fell 17%. Silver production was also down from 3.8 million ounces in Q2.
• **Unit costs:** AISC jumped to $30.45 per silver-equivalent ounce from $20.90.
• **Management's explanation:** It attributed much of the cost increase to a lower silver-equivalent conversion ratio (75:1 versus 87:1) and said costs would be about 6% lower on last year's assumptions. Even so, the call pointed to genuine pressure from lower cutoff grades, profit-sharing linked to metal prices, a 7% stronger peso, and higher diesel, reagent and maintenance costs.
• **Timing at Los Gatos:** Ground-control issues pushed some high-grade ore into the fourth quarter.

Year-to-date AISC of $28.55 remains within revised guidance.

San Dimas is the new and material risk. A labor dispute over whether the company must cover employees' income taxes on a production bonus has halted the mine since September 18. It cost 12 days in Q3, and the union formally called a strike on October 8. First Majestic is challenging the strike's legality, with a ruling expected in the second half of November. The company has withdrawn San Dimas' production and cost guidance. The tone shift is notable: on the Q2 call, management had described the workforce as content. CEO Keith Neumeyer said the other three operations are performing at or above budget and that the company can "easily withstand" the disruption. With $1.23 billion in treasury, that claim is credible financially. Operationally, however, the problem is unresolved.

The call preserved a credible longer-term growth story.

• **Santo Niño:** Permits arrived about 18 months early. First development ore is now targeted for Q1 2027, versus end-2027 on the prior call.
• **Santa Elena:** The mine has repeatedly exceeded its 3,500-tonne-per-day expansion target.
• **Jerritt Canyon:** The project is on budget, with $42 million spent against a $75 million 2026 plan and the mining fleet and mill components fully ordered. First gold is framed for Q4 2027, but 2027 capital spending has not been disclosed.
• **Mexico tax dispute:** The company dropped its NAFTA arbitration case and is moving through a staged settlement. That process is still early, at roughly step 5 or 6 of 30, and payment timing is uncertain.
• **Shareholder returns:** The dividend nearly tripled year over year, and the company repurchased 1.3 million shares this year.

Investor expectations have deteriorated sharply. Earnings Whispers sentiment swung from 0.17 after the prior report to -0.26 ahead of this one. That is a meaningful move from mildly positive to clearly negative. The price action explains why. Shares rallied to $22.19 in late August and then slid to $13.93 on October 30. At $15.39, the stock is essentially unchanged from the $15.36 open after the July report. It entered earnings 22.8% below its 200-day moving average, near the bottom of its inter-earnings range. The market had already given back the entire summer spike as silver weakened and the strike emerged.

The bottom line is that First Majestic delivered an in-line quarter that looks spectacular year over year but marks a third consecutive sequential decline in revenue, production and cash flow per share. Unit costs are rising, and a strike has idled a core mine. The balance sheet, the accelerated Santo Niño timeline and the Jerritt Canyon progress give the company real staying power and future optionality. Near term, however, the investment setup depends on silver prices and the November ruling at San Dimas, and bears have legitimate ammunition on both fronts.

Read our earnings preview for First Majestic Silver Corp.: https://www.earningswhispers.com/article/AG/22036

This earnings review was originally published on Earnings Whispers.

This article is for informational purposes only and is not investment advice. Earnings Whispers and its staff may hold positions in the securities mentioned. It is AI-assisted, based on proprietary Earnings Whispers data and company reports, and edited by Earnings Whispers staff.