Operational Efficiencies At San Bartolomé Will Improve Output But Currency Fluctuations May Impact Margins

Key Takeaways

• Operational improvements and favorable foreign exchange conditions expected to enhance production output, reducing costs and bolstering margins at Golden Queen and San Bartolomé.
  
• Strategic capital moves, like share buybacks and exploration investments, indicate financial stability and could enhance shareholder value and future earnings.
  
• Financial risks from currency fluctuations and changing silver prices, combined with high capital expenditures, could pressure margins and limit revenue growth.

Catalysts

Engages in the acquisition, exploration, development, and processing of mineral resource properties.

• The upgrade of the mobile fleet at Golden Queen is expected to provide operational efficiencies, potentially leading to reduced costs and improved production output, positively impacting net margins and earnings.
  
• Favorable foreign exchange conditions with the Bolivian Boliviano are anticipated to continue, which could lower local operating expenses and bolster gross margins.
  
• The exploration strategy and potential resource upgrades at Golden Queen could lead to increased future production, impacting revenue growth positively.
  
• Continued investment in operational efficiencies at San Bartolomé, including processing upgrades and tailings expansion, is aimed at maintaining production levels and improving gross margins.
  
• The strong cash position and strategic capital allocation, including share buybacks and potential inorganic growth opportunities, suggest an enhanced financial stability and shareholder value, likely improving long-term earnings per share (EPS).

Andean Precious Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Andean Precious Metals's revenue will grow by 11.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 24.2% today to 2.0% in 3 years time.
• Analysts expect earnings to reach $6.3 million (and earnings per share of $0.0) by about March 2028, down from $55.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 52.2x on those 2028 earnings, up from 3.5x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 12.6x.
• Analysts expect the number of shares outstanding to decline by 1.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

Andean Precious Metals Future Earnings Per Share Growth

Risks

• The company experienced lower production than expected due to temporary suspensions and lower tailings recovery, which may impact future revenues and operational efficiency.
  
• The transition to exclusive ore purchasing and processing could lead to lower margins compared to typical mining activities, potentially affecting profitability and net margins.
  
• The 2025 guidance predicts only a small increase in production, which might limit significant revenue growth and affect the company’s earnings potential.
  
• The company's capital expenditures on equipment upgrades are high, which, while necessary for future efficiencies, could pressure short-term cash flows and net margins.
  
• Fluctuations in the Bolivian Boliviano currency against the U.S. dollar, as well as changing silver prices, present financial risks to operating margins and could impact net income.

Valuation

• The analysts have a consensus price target of CA$2.627 for Andean Precious Metals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$3.53, and the most bearish reporting a price target of just CA$2.13.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $316.5 million, earnings will come to $6.3 million, and it would be trading on a PE ratio of 52.2x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of CA$1.86, the analyst price target of CA$2.63 is 29.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.