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 3mn in the last 12 months, down 0% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 90% from FY23 to USD -0.06. Market expects EPS to reach USD -0.04 in FY24.

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). It has underperformed this peer group by 18ppts over six months and grown 0ppts 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.

In the last 12 months, the return on capital employed (RoCE) grew to -49.4%, below the peers. 

Sierra Madre Gold and Silver Ltd. reported a return on equity (RoE) of -63.9% in the last 12 months, up from -262.8% in FY22. 

Another important profitability metric, return on assets (RoA), amounted to -40.8% in the last 12 months, an increase from -87.8% in FY22. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been -7.8 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, bleak profitability, negligible return on capital, poor working capital management, inadequate interest coverage, and poor cash flow generation. We note low margin volatility, 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. 

Based on key historical and expected multiples, the stock is fairly valued relative to its peers. Specifically, the stock is fairly valued on P/E. 

Sierra Madre Gold and Silver Ltd.

$ 0.41

3

Sierra Madre Gold and Silver Ltd.

$ 0.41

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 0.41

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