Silver X marks the spot?

Canada-listed TSE: AGX considered - part of OB24 idea BSRT

Dear reader

A wizard reader told me they couldn’t invest in Baker Steel since it holds Silver X.

What was that noise in Family Fortunes when you make a mistake? Beeehhh burrrrrr. The X meant it was a bad answer. Will that prove to be the case here?

Click on this to watch Episode 1 of Family Fortunes!

They said:

“I just cannot get over SilverX. Every time there's an update I see nothing to disconfirm my view that management is on the take and unable to maintain costs. The bad old days of noughties mining management. But of course they're cheap and could multi-bag easily, 1000% plus. I dunno though I just don't trust them.”

I was curious. 1000% curious about the possibility of a multi-bag easily, perhaps.

The three year picture of Silver X isn’t pretty. You could quite easily have lost half your money buying at $0.40 or more. A half bag you could say.

It’s only 1.8% of BSRT so there are 98.2% other reasons to feel positive about BSRT, but can I make it 100%? Let’s see if the market’s dislike is matched by the facts.

The £1.7m holding in Silver X as at 28/02/25 is actually up £0.45m since 28/02/25 is the first thing since the share price moved from CAD$0.15 to CAD$0.19 until the 14th March, so that’s worth 0.4p per BSRT share to Bazratters.

Management costs at Silver X are ~£1m per year, for a £16m turnover business. I see why my reader dislikes it.

The number of managers appears the problem. The pay itself isn’t all that excessive. The most expensive person is the CEO who gets £190k for running a £29.2m market cap company. He has 3m options at 25%-300% above today’s share price - potentially worth £0.5m or so. Can’t see the problem with compensation.

So the problem is costs relative to revenue.

Silver X, a junior silver producer and developer listed on the TSX-V (AGX), operates primarily in Peru’s Nueva Recuperada Silver District, focusing on its Tangana and Plata mining units. Its fiscal year is to 31/12 so FY2024 ended December 31, 2024.

I speak about this MRE later on - to try to make sense of the financial data

FY2024 Results Assessment

Silver X’s FY2024 performance is pieced together from its Q3 2024 financials (released November 28, 2024), operational updates, and full-year production data inferred from prior quarters and guidance. Full FY2024 results aren’t yet public so I’m extrapolating based on trends.

1. Revenue

   • Estimate: For the first nine months of 2024 (Q1–Q3), Silver X reported $13.9 million USD in revenue (Q3 2024 financials), up from $11.8 million in Q1–Q3 2023, a 17.8% increase. Assuming Q4 aligns with Q3’s $4.9 million (a 29% YOY rise), full-year revenue could hit $18.8–$19.5 million USD, reflecting steady production and silver price tailwinds (spot ~$31/oz in Q4 2024).

   • Drivers: Production of 839,710 silver equivalent ounces (AgEq) in Q1–Q3 (29% up from 648,637 oz in 2023), with Q4 likely adding 280,000–300,000 oz based on Tangana’s 720 tpd capacity. Higher silver prices (up 30% YOY per World Bank data) and a richer ore mix boosted revenue, though higher costs tempered gains.

   • Assessment: Robust growth, leveraging a strong silver market and operational ramp-up, though still small-scale compared to peers.

2. Adjusted Operating Income

   • Result: Q1–Q3 2024 showed an operating loss of $1.1 million, improved from a $2.5 million loss in Q1–Q3 2023. Q3 alone posted a $0.2 million profit, suggesting FY2024 could break even or hit a slight profit of $0–$0.5 million if Q4 sustains momentum.

   • Drivers: Higher throughput (600 tpd at Tangana), cost efficiencies (AISC down to $24.95/AgEq oz in Q3 from $27.88 in Q2), and reduced waste rock processing. Offsetting this: inflation in Peru (2.5% annualised) and plant maintenance costs.

   • Assessment: A pivot to profitability in Q3 signals operational improvement, but margins remain razor-thin, reflecting junior miner challenges.

3. Net Income

   • Result: Q1–Q3 net loss was $3.8 million, down from $5.5 million in 2023, with Q3 at a $1.1 million loss. Full-year net loss likely narrowed to $4.5–$5 million, factoring in Q4’s potential breakeven ops but persistent financing costs (e.g., Trafigura loan interest).

   • Drivers: Non-cash items (depreciation, share-based payments) and a pricey $1.4 million Trafigura loan (SOFR + 6%) added pressure, though revenue gains mitigated losses.

   • Assessment: Losses shrank, but profitability hinges on scaling output and managing debt—still a work in progress.

4. Production and Operations

   • Result: ~1.12–1.15 million AgEq oz for FY2024 (839,710 oz Q1–Q3 + Q4 estimate), up 25–30% from 896,000 oz in FY2023 (Q4 2023: 247,363 oz).

   • Details: Tangana hit 600 tpd by Q3, with grades improving (e.g., 7,232 g/t AgEq over 0.95m in prior sampling). Plata rehab began, though not yet producing.

   • Assessment: Steady output growth reflects Tangana’s maturation, but capacity (650 tpd permitted) isn’t fully tapped, and Plata’s delay limits upside.

5. Key Strategic Moves

   • Resource Update: February 26, 2025, announced a 18% increase in measured/indicated resources (4.3M tonnes) and 45% in inferred (17.18M tonnes) at Nueva Recuperada, with Plata’s 5.81M oz indicated and 26M oz inferred boosting potential.

   • Financing: $1.4 million Trafigura loan (February 19, 2025) and $5 million private placement (May 2024) bolstered liquidity.

   • Assessment: Resource growth and funding secure the runway, but execution risk remains high.

Overall Assessment: FY2024 was a year of progress—revenue up 20–25%, production up 25–30%, and losses cut by ~20%. Tangana’s ramp-up and a hot silver market (32% demand rise per Silver Institute, 2024) drove gains, but profitability lagged due to costs and scale. A solid foundation, yet vulnerable to operational hiccups.

FY2025 Outlook Assessment

Silver X hasn’t issued detailed FY2025 guidance but management commentary, resource updates, and industry trends offer a framework.

1. Revenue Outlook

   • Projection: Targeting 720 tpd at Tangana (20% capacity hike) and Plata’s Q3 2025 start (per November 2024 investor presentation), production could reach 1.5–1.8 million AgEq oz. At $30–$32/oz silver, revenue might hit $45–$55 million USD, a 2–3x jump.

   • Drivers: Plata’s higher grades (190 g/t Ag indicated) and Tangana expansion, plus silver prices projected at $30–$35/oz (Silver Institute 2025 forecast). Risks: delays in Plata rehab or price volatility.

   • Assessment: Ambitious growth potential, contingent on execution and market stability.

2. Profit Outlook

   • Projection: Operating profit could reach $5–$10 million if AISC drops to $20–$22/oz with scale, though net profit may lag at $2–$5 million due to debt servicing (~$0.5M interest) and capex ($5–10M for Plata).

   • Drivers: Higher volumes, cost dilution, and efficiency gains (e.g., 2,500 tpd plant ESIA underway). Headwinds: Peruvian regulatory shifts (e.g., water usage laws) and capex burn.

   • Assessment: Profitability within reach, but cash flow will be tight until Plata scales.

3. Strategic Priorities

   • Production Ramp: Tangana to 720 tpd by mid-2025, Plata online by Q3, aiming for 6M oz by 2028 (hub-and-spoke model).

   • Resource Expansion: Updated PEA (H2 2025) to integrate Plata, potentially lifting NPV from $175M (2023 PEA, 39% IRR).

   • Financing: More debt or equity raises likely to fund $10–$20M in capex.

   • Assessment: Clear roadmap, but funding and timelines are critical variables.

4. Market Context

   • Tailwinds: Silver demand up 1% to 1.21B oz (2024), with solar/EV use rising 8% (EY 2024). Prices could test $35/oz if US rates ease (Bloomberg, March 2025).

   • Headwinds: Peru’s mining law changes (30-year concessions, stricter permits) and geopolitical risks (e.g., US tariffs) may raise costs. X posts (e.g.,

     @bozkaschi

     , March 12) see AGX as a buy with targets at $0.22–$0.50 CAD, reflecting optimism.

   • Assessment: Favorable silver macro, but local risks loom large.

Overall Assessment: FY2025 could be transformative—production doubling, revenue soaring, and profits emerging if Plata hits. The 6.35M-tonne Plata resource and Tangana’s scale-up signal upside, but capex, debt, and Peru’s regulatory maze pose hurdles. High risk, high reward.

Comparison and Takeaway

• FY2024 vs. FY2025: FY2024 built momentum (revenue ~$19M, 1.1M oz), while FY2025 aims for a leap (revenue $45–$55M, 1.5–1.8M oz), shifting from stabilization to expansion.

• Strengths: Growing resources (31.81M oz Ag at Plata), silver price tailwinds, and operational traction.

• Weaknesses: Junior-scale cash flow, execution risk, and funding gaps.

• Silver X’s FY2024 laid groundwork—revenue up, losses down, Tangana humming. FY2025 hinges on Plata’s debut and scaling to 720 tpd, promising a breakout if delivered. A speculative play with strong fundamentals but execution uncertainty— depends on silver prices.

The Share is “Deep Value” - 0.23X P/NAV

Is it though?

0.23X P/NAV for a Market Cap of CAD$38m so £20.5m. The NAV is USD$19.3m so £15m. So it’s 1.33X P/NAV?!

Balance Sheet in USD (3Q24)

Loss Making - Turnaround

The disclosures in their accounts are terrible. Really poor. Revenue is this. No explanation. COS is that. No explanation.

But the Oak Bloke was undeterrred!

I took the AISC per ounce provided in a presentation, and Ore Mined, to work out the AISC in $m. I then calculated the cost per tonne of ore. I then used that to calculate the ounces of Silver Equivalent as well as the Ounces per Tonne.

I used that to calculate the Revenue Per Ounce of Ag Eq, and the Revenue per Tonne. No encouraging insights where revenue jumps around without much explanation.

I then took average prices for the corresponding quarters to see if the revenue per ounce varied due to price or due to grade. Variable grade appears to explain things.

I then took the MRE and calculated each into ounces per tonne based on the MRE (i.e. converted from grams per tonne and percentage to ounces.

We see based on the volume of material this is 54% Lead and 33.7% Zinc

Finally I multiplied the OZ/Tonne by the per ounce price to get a value per tonne mined (for 3Q24). Interestingly 66% Gold, 30% Silver, 2% Zinc and 2% Lead.

So this would be more accurate to be called Gold X?

Anyway I also looked at M&I as well. The numbers were a bit lower.

I then thought hmm my other calculation based on the P&L was that the revenue per tonne was $106.17. So that means the recoverability must be somewhere between 41%-54%. Now, these are simply attempts to rationalise the financial results against the Material Resource Estimate (the MRE). I don’t definitively know this to be the case.

Finally I pondered two things.

1. What if I used prices as at 14/03/25 not the average for 3Q24?

2. What would $50/oz Silver do to the numbers?

So today’s prices translate to a 15% jump in revenue. $22.86 per ounce (per the latest 3Q24 result) plus 15% would mean $26.20/ounce revenue and that’s precisely break even to the last (3Q24) AISC of -$26.20/ounce!

$50 Silver (instead of $29.50) means +$4.54 an ounce.

This would take Silver X from losing -$3.34 per ounce (as it did in 3Q24) to earning $1.19 per ounce operating profit instead.

Combine both - todays prices for Gold, Lead and Zinc plus boost it to $50/ounce silver? Well $22.86 per ounce revenue leaps to $42.99 revenue per Ag Eq’t.

That would be US$37.54m revenue and around $12m PBT so $9m after tax?

That would be a P/E of 4X…. and that’s before they do anything to sort out that (assumed) dreadful level of recovery, or improve tonnage. So Silver X might end up being successful simply because it benefits from a rise in price.

At lower commodity prices I’d have some real concern about Silver X.

A final Thought - what does the CEO say?

If you’ve made it this far and are reading with interest, then it’s worth watching the video below and interview.

The MD claims he can achieve an AISC of $20 per ounce Ag Eq’t and that the AISC $26.20 will move lower in 2025, due to processing higher tonnage and veins with higher grades. Production is 600 tonnes a day and the plant is capable of 720 tpd. We speaks to considering capex spend to expand plant to 2200 tpd. For production to move from 2m ounces equivalent to 6m ounces per year. It’s less clear how he will afford that capex.

Regards

The Oak Bloke

Disclaimers:

This is not advice - make your own investment decisions.

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip"