Profit Margins Will Shrink Despite Strong Operations At Las Chispas Mine

Key Takeaways

• Strong operational performance and cost control at Las Chispas mine are boosting cash flow and promising future revenue stability.
  
• Merger with Coeur Mining and solar power plans aim to enhance earnings through resource sharing and reduced energy costs.
  
• SilverCrest Metals' strong financial health, efficiency, and acquisition prospects support future revenue and earnings growth, enhancing shareholder value and resilience.

Catalysts

Engages in the acquiring, exploration, and development of precious metal properties in Mexico.

• Continued strong operational performance at the Las Chispas mine is boosting free cash flow significantly. This could lead investors to expect sustained or increased future revenues due to operational consistency and cost control efficiencies.
  
• The upcoming merger with Coeur Mining is perceived as a positive growth catalyst, potentially increasing combined company revenues and operational synergies, which could enhance earnings through shared resources and improved cost structures.
  
• The company's strategy of increasing bullion holdings in a favorable precious metal price environment provides potential upside to treasury assets and earnings, driven by anticipated continued high metal prices.
  
• The company’s success in keeping operating costs low, particularly cash costs and all-in sustaining costs (AISC), may lead investors to view future profit margins optimistically, anticipating that strong bottom-line results will continue.
  
• Planned solar power integration at Las Chispas could reduce operational costs over time, boosting net margins by decreasing reliance on more expensive energy sources, enhancing long-term earnings stability.

SilverCrest Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SilverCrest Metals's revenue will decrease by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.8% today to 18.6% in 3 years time.
• Analysts expect earnings to reach $49.3 million (and earnings per share of $0.35) by about February 2028, down from $85.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.0x on those 2028 earnings, up from 19.2x today. This future PE is greater than the current PE for the CA Metals and Mining industry at 13.4x.
• Analysts expect the number of shares outstanding to grow by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.67%, as per the Simply Wall St company report.

SilverCrest Metals Future Earnings Per Share Growth

Risks

• SilverCrest Metals demonstrated record revenue and strong operating margins, suggesting robust financial performance that could support future revenue and earnings growth.
  
• The company maintained a debt-free status with $160 million in treasury assets, indicating strong financial health and potential to withstand market downturns, benefiting net margins and earnings.
  
• Higher bullion holdings and favorable gold and silver prices added value to SilverCrest's balance sheet, potentially enhancing revenue and net margins.
  
• The Las Chispas operation increased its mining rates and maintained low cash cost and all-in sustaining costs, indicating efficient operations that could sustain or improve net margins.
  
• The pending acquisition by Coeur Mining, at an 18% premium, suggests confidence in SilverCrest’s future prospects, potentially impacting revenue positively and increasing shareholder value through strategic synergy.

Valuation

• The analysts have a consensus price target of CA$15.167 for SilverCrest 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$17.0, and the most bearish reporting a price target of just CA$13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $265.4 million, earnings will come to $49.3 million, and it would be trading on a PE ratio of 40.0x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of CA$15.83, the analyst price target of CA$15.17 is 4.4% lower. The relatively low difference between the current share price and the analyst consensus 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.