Sierra Madre Gold and Silver Ltd., a mineral exploration company, engages in the acquisition, exploration, and development of resource properties. It holds an interest in the Tepic silver-gold property comprising five mining concessions covering an area of 2,612.5 hectares located to the south-southeast from the city of Tepic, Nayarit; and the La Tigra gold-silver property that consists of seven mining concessions covering an area of 357 hectares located in the State of Nayarit, Mexico. The company is based in West Vancouver, Canada.

Canada

Sierra Madre Gold and Silver Ltd.

Basic Materials

The company does not pay dividends at all, or it pays them sporadically. There have only been a few years with dividend payments in the past ten years. 

SMDRF reported revenue of USD 6mn in the last 12 months, down 0% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 95% from FY23 to USD -0.03. Market expects EPS to reach USD -0.03 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 5ppts over past six months and grown 2ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported very poor EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to -51.8% in the last 12 months, a decline from -51.7% in FY23. 

Historically, SMDRF has reported very poor net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled -64.3%, down from -63.0% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to -13.2%, below the peers. The consensus estimate for FY24 for RoCE is -9.3%, again behind the peers. 

Sierra Madre Gold and Silver Ltd. reported a return on equity (RoE) of -16.2% in the last 12 months, up from -27.4% in FY23. The market consensus projects an RoE of -11.3% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to -12.8% in the last 12 months, an increase from -20.5% in FY23. The market analysts predict that RoA will be -9.9% in FY24, again weaker than its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been -4.5 in the past several years. This ratio implies a fragile shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

SMDRF has very poor trading liquidity. It will take considerable time for the average private investor to sell a common position under normal market conditions. Liquidity is unstable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, bleak profitability, negligible return on capital, poor working capital management, inadequate interest coverage, and poor cash flow generation. We note low margin volatility and an favourable capital structure, among the positive credit factors. 

In highly turbulent market conditions, SMDRF is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, SMDRF is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense. 

Considering past and projected metrics, the stock is moderately 'expensive' compared to its peers. Specifically, the stock is undervalued on EV/EBITDA, reasonably priced on P/FC. 

Sierra Madre Gold and Silver Ltd.

$ 0.42

3

Sierra Madre Gold and Silver Ltd.

$ 0.42

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 0.42

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