Morocco's Tightening Rules And Depleting Reserves Will Squeeze Margins

Key Takeaways

• Increasing regulatory pressures, reliance on favorable Moroccan policies, and resource depletion threaten sustainable growth, margins, and long-term earnings stability.
  
• Rising costs, volatile silver demand, and execution risks in expansion projects could undermine revenue, cash flow, and shareholder returns.
  
• Robust production growth, strengthened margins, and strategic partnerships position Aya Gold & Silver for sustained earnings visibility and resilience amid increased ESG-focused investor demand.

Catalysts

Engages in the exploration, evaluation, and development of precious metals projects in Morocco.

• The ongoing global push for decarbonization and increasingly stringent environmental regulations are likely to raise Aya Gold & Silver's operating costs and restrict its ability to secure permitting for future projects, directly squeezing long-term net margins and putting pressure on sustainable earnings growth.
  
• Should real interest rates rise over the long term due to changing global demographics and investment cycles, investor demand for silver as a safe-haven asset may weaken, resulting in structurally lower realized prices for Aya's silver production and a persistent drag on top-line revenues.
  
• The company's future growth depends heavily on maintaining or expanding its resource base at flagship sites like Zgounder and Boumadine, but as resources deplete and ore grades decline, Aya faces the risk of higher extraction costs and falling net margins unless significant new reserves are consistently discovered, which is inherently uncertain as exploration moves further afield.
  
• Aya's reliance on Morocco's favorable fiscal and regulatory regime leaves it highly exposed to policy shifts such as increased royalties, higher taxes, or more burdensome environmental standards-any of which would negatively affect net profit, cash flow, and overall return on equity.
  
• Execution risk remains elevated as Aya undertakes large-scale expansion and development projects; any substantial cost overruns, unforeseen delays, or technical challenges could undermine the expected production ramp-up and persistent free cash flow, leading to lower-than-forecasted earnings and diminished shareholder value over time.

Aya Gold & Silver Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Aya Gold & Silver compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Aya Gold & Silver's revenue will grow by 40.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -17.9% today to 36.3% in 3 years time.
• The bearish analysts expect earnings to reach $68.8 million (and earnings per share of $0.52) by about July 2028, up from $-12.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.2x on those 2028 earnings, up from -113.5x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 17.2x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Aya Gold & Silver Future Earnings Per Share Growth

Risks

• The successful ramp-up and smooth commissioning of Aya's new Zgounder plant already delivering record production, positive operating cash flow, and net profitability indicate robust operational execution, which could drive higher future revenues and earnings.
  
• Major expansion and exploration programs at both Zgounder and Boumadine are continuing to add significant resources, with recent updates increasing Boumadine's silver equivalent resources and demonstrating sustained organic reserve growth, supporting long-term earnings visibility and potential valuation upside.
  
• The company is now producing and selling silver as ingots rather than concentrate, allowing it to realize a much higher percentage of metal value and consistently beat average market prices, which could improve realized prices and expand net margins.
  
• Aya benefits from a very strong liquidity position, including meaningful cash balances, rapid conversion of receivables, and an expanded $25 million credit facility with EBRD; this supports ongoing investment in cost controls and exploration, which can translate into steady or increasing free cash flow.
  
• The company's strategic partnership with EBRD and ability to secure project financing and permitting quickly in Morocco, coupled with sustainable ESG and community initiatives, position Aya Gold & Silver favorably within an industry seeing greater ESG-driven investor demand, which could drive continued access to low-cost capital and support both revenue and net margin resilience.

Valuation

• The assumed bearish price target for Aya Gold & Silver is CA$13.67, which represents two standard deviations below the consensus price target of CA$19.5. This valuation is based on what can be assumed as the expectations of Aya Gold & Silver's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$22.03, and the most bearish reporting a price target of just CA$11.97.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $189.2 million, earnings will come to $68.8 million, and it would be trading on a PE ratio of 25.2x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of CA$13.32, the bearish analyst price target of CA$13.67 is 2.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.