Silver Supply Tight, Demand Rising — What's Next? | First Majestic's Mani Alkhafaji

Key Concepts

• Triple-Digit Silver: The recent achievement of silver prices exceeding $100 USD, signifying a bull market and impacting margins for silver mining companies.
• Dore vs. Concentrate Production: Two forms of silver production; Dore is directly mintable, while concentrate requires smelting, limiting supply of mintable silver.
• Industrial Demand: Increasing demand for silver from industries like solar panel manufacturing, creating supply constraints.
• Retail vs. Institutional Investment: The current market is driven primarily by retail investors, with institutional investors expected to follow once financial results reflect higher silver prices.
• Supply Constraints: The long lead time for new silver mine development (approximately 18 years) and challenges in recycling limit the potential for a rapid supply response to rising prices.
• First Majestic Silver & First Mint: The mining company and its associated minting operation, uniquely positioned with direct access to Dore silver production.

Silver Market Dynamics & First Majestic Silver – A Detailed Overview

I. Current Market Sentiment & Demand (VRC Show Floor)

The Vancouver Resource Investment Conference (VRC) floor exhibits a highly enthusiastic mood regarding silver. First Majestic Silver’s booth is experiencing exceptionally high demand, with silver products “flying off the shelves.” This reflects a widespread belief that silver is currently in a bull market, evidenced by the prevalence of “triple digit silver” merchandise. Sales at First Majestic’s First Mint are also experiencing record highs, with hundreds of transactions daily and buyers realizing profits quickly. This demand is particularly strong in the West, where rising prices seem to increase buying interest, a contrast to potential trends in Eastern markets. A price premium exists between China and the US, with the Western price appearing to “front run” the Chinese market. Several mints are reportedly experiencing silver shortages, a situation First Majestic is mitigating through its own mine production.

II. Supply Chain & Production Considerations

A key factor influencing silver availability is the distinction between Dore and concentrate production. Approximately 80% of silver is produced as concentrate, requiring smelting before it can be used for minting. This significantly constrains the amount of silver readily available for producing coins and bars. First Majestic Silver benefits from a majority of its production being in Dore form, allowing direct sourcing to its First Mint. The company’s 2025 production is projected to be down approximately 10%, but with gradual increases expected in Q3 and Q4. The goal is to exceed 10% of total production allocated to the mint in 2026.

Industrial demand is also tightening supply. Manufacturing companies, particularly in the solar panel industry, are increasingly seeking to secure direct silver supply agreements, though First Majestic currently directs its output to banks and retail through the First Mint. The company maintains flexibility to potentially change this in the future.

III. Financial Performance & Strategic Outlook

First Majestic Silver is experiencing significantly improved financial performance due to the rising silver price. The company will release its financial results on February 19th. Higher margins are enabling increased capital allocation, including a doubling of dividends and substantial investment in the business. This allows for consideration of long-term strategic investments. The company emphasizes maintaining operational discipline, controlling costs, and focusing on factors within its control, despite external price fluctuations. Higher prices allow for the economic processing of lower-grade silver ore that was previously unprofitable.

IV. Production Guidance & Exploration

First Majestic’s 2026 guidance focuses on meeting production targets and maintaining cost controls. A robust exploration program, encompassing over 260 kilometers of drilling, is underway to expand resources. A standalone update on the Jer Canyon project is expected before the end of Q1. The company’s strategy is built on growth, historically achieved through accretive acquisitions. They are actively seeking acquisition opportunities, prioritizing those that fit their portfolio and are at a late-stage development or early-stage production level. Finding high-quality silver deposits remains a significant challenge.

V. Supply Response & Long-Term Outlook

The speaker emphasizes that a significant supply response to higher silver prices is unlikely in the short to medium term. It takes an average of 18 years to bring a new silver mine into production, and recycling efforts are becoming more complex and expensive. While some smaller mines may restart, overall supply is not expected to increase substantially. Demand, however, continues to rise due to new technologies and industries. Substitution of silver with copper in certain applications is unlikely due to silver’s superior conductivity.

VI. Institutional Investment & Stock Performance

The current silver market is largely driven by retail investors. Institutional investors are expected to enter the market once financial statements reflect the impact of higher silver prices. The Q3 financial results, based on an average silver price of $38-$39, are the most recent data available to the market. The current silver price (around $120) is not yet reflected in reported earnings. Once these higher earnings are realized, institutional investment is anticipated to increase rapidly. While some generalist meetings are beginning, the VRC conference remains primarily attended by existing sector participants.

Notable Quotes:

• “We’re in a very unique position. We’re minting our own silver. Other mints have to go and source silver.” – Manny Alkapagi, highlighting First Majestic’s supply advantage.
• “You need to have triple digits for quite some time, sustainable levels in order to really entice management to go and make these commitments.” – Manny Alkapagi, on the time required for a supply response.
• “Silver is is high conductive for electricity and heat and you know copper is not is not going to replace silver.” – Manny Alkapagi, on the limitations of substituting silver with copper.

Conclusion:

The silver market is currently experiencing strong momentum driven by retail demand and rising prices. First Majestic Silver is well-positioned to benefit from this environment due to its integrated mining and minting operations, access to Dore production, and strong financial performance. While supply constraints and the long lead time for new mine development suggest limited potential for a rapid supply response, continued demand from both traditional and emerging industries is expected to support further price appreciation. The key to unlocking broader institutional investment lies in the release of financial results that fully reflect the impact of higher silver prices.