Silver Becomes "Critical" As Shortage Continues | Mani Alkhafaji

Key Concepts

• Silver Supply & Demand Deficit: A structural imbalance with demand exceeding supply, leading to depletion of above-ground stockpiles.
• Critical Minerals List: The US government’s designation of silver as a critical mineral, potentially easing permitting and boosting domestic production.
• Vertical Integration: First Majestic’s strategy of controlling more of the silver value chain, including mining, refining, and minting.
• Production Growth: First Majestic’s significant increase in silver production, driven by organic improvements and the acquisition of the San Martin mine.
• Financial Performance: Record revenue, cash flow, and increased dividends reflecting strong silver prices and operational efficiency.
• Beta: A measure of a stock's volatility in relation to the market. First Majestic historically has a 3:1 beta with silver prices.

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Precious Metals Market Volatility & First Majestic’s Performance

The interview begins with a discussion of recent volatility in the precious metals market, particularly silver. While silver experienced a rapid price increase towards the end of 2024 and early 2025, reaching nearly $80, a subsequent 25% drop caused concern. However, the market appears to have stabilized around the $80 level, with a recent rally coinciding with the Chinese New Year, signaling potential strength. Monty Akafaji notes that the rapid rise was unsustainable and a correction was expected.

Fundamental Silver Supply & Demand Dynamics

A central theme is the persistent supply and demand deficit in the silver market. Akafaji emphasizes that supply is “tapped out,” with no significant new supply entering the market. Production has been flat for the last decade, currently around 800-830 million ounces, while demand is increasing, reaching 1.2-1.3 billion ounces annually. This deficit has persisted for six years, resulting in a cumulative shortfall of approximately 150 million ounces last year alone. To bridge this gap, ten companies the size of First Majestic would be required, which is unrealistic.

Demand is driven by existing industries like photovoltaics (solar panels) and emerging applications like solid-state batteries (Samsung and Toyota are developing this technology). Recycling helps, but doesn’t fully offset the deficit.

First Majestic’s Record Performance in 2025

First Majestic Silver experienced a “transformational year” in 2025, driven by two key factors: organic improvements in existing operations and the addition of the San Martin silver mine (Gatos Los Gatos). This acquisition consolidated existing silver production under the First Majestic umbrella, rather than adding entirely new supply to the market.

Key financial highlights include:

• Record Revenue: Nearly $1.3 billion.
• Strong Cash Flow: Over $400 million for the year, with $250 million in Q4.
• Increased Dividend: Doubled from 1% to 2% of revenue, reflecting confidence in financial performance and a commitment to shareholder returns.
• Record Operating Metrics: Guidance targets were met or exceeded.

Vertical Integration & Value Creation

First Majestic is actively pursuing vertical integration to enhance profitability and reduce reliance on external markets. Key initiatives include:

• In-House Minting Facility: Located in Las Vegas, this facility refines and mints First Majestic’s silver, capturing additional margin. In Q4, silver sold through the mint averaged $69 per ounce compared to the COMEX price of $55, representing a significant premium. The facility currently processes 12% of First Majestic’s production, with plans to scale up to 100%. This removes silver from the leverage of banks and puts it directly into the hands of retail investors.
• Exploration & Expansion: Extensive exploration programs (266 km of drilling planned for 2026) and plant expansions are underway to extend mine life and increase production.
• Jer Canyon Acquisition: A fully permitted gold asset in a Tier 1 jurisdiction, potentially adding diversification and value.

Geopolitical Factors & Critical Mineral Designation

The US government recently added silver to its list of critical minerals. First Majestic actively lobbied for this designation, recognizing its potential to:

• Increase Government Attention: Highlight the importance of silver and encourage supportive policies.
• Expedite Permitting: Reduce bureaucratic hurdles and accelerate the development of new silver mines.
• Reduce Time to Production: The current timeline from discovery to production is approximately 18 years; streamlining this process is crucial to address the supply deficit.

Akafaji anticipates that other governments (Canada, Mexico) will follow suit, fostering collaboration with mining companies to increase production.

Investment Considerations & First Majestic’s Differentiation

For prospective investors, Akafaji highlights First Majestic’s key differentiators:

• Portfolio of Assets: Four producing mines, three of which are district-scale with significant exploration potential.
• Pure-Play Silver Exposure: Approximately 60% of revenue is derived from silver, making First Majestic a relatively “pure” silver play compared to other companies.
• No Hedging: First Majestic does not hedge its silver production, providing direct exposure to silver price movements.
• Proven Management Team: A stable and experienced team focused on execution and shareholder value.
• Innovation & Technology: Continuous investment in technologies to improve operations and optimize costs.

Notable Quotes

• “Supply is tapped out. There is no materially new supply hitting the market.” – Monty Akafaji, emphasizing the fundamental supply deficit.
• “We’re the purist. We’re not shy in investing in technologies and innovation.” – Monty Akafaji, highlighting First Majestic’s commitment to innovation.
• “If you want silver exposure, you want the silver leverage, you’re buying First Majestic.” – Monty Akafaji, positioning First Majestic as a direct play on silver prices.

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Conclusion

First Majestic Silver is well-positioned to benefit from the ongoing supply and demand imbalance in the silver market. The company’s record performance in 2025, driven by strategic acquisitions, operational improvements, and vertical integration, demonstrates its ability to deliver value to shareholders. The designation of silver as a critical mineral by the US government is a positive development that could further support the industry. Investors seeking direct exposure to silver price appreciation and a company focused on long-term growth may find First Majestic an attractive investment opportunity. The company’s commitment to innovation, exploration, and shareholder returns suggests continued success in the years ahead.