Mining Co. Shares Expansion Plans Following Raise
Research Report

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On September 8, 2025, VSA Capital analyst Oliver O'Donnell, CFA, reiterated a Buy recommendation on Sierra Madre Gold and Silver Ltd. (SM:TSX.V; SMDRF:OTCQX) with an unchanged target price of CA$1.40, representing 36% upside from the current share price at the time of the report of CA$1.03.

The analyst maintained the target despite acknowledging that the company's detailed expansion plans following a recent CA$19.5 million capital raise suggest his current forecasts may be "on the conservative side."

Accelerated Expansion Timeline and Production Targets

Sierra Madre Gold & Silver Ltd. provided comprehensive details on its growth strategy following the successful CA$19.5 million financing. The company plans to achieve 700-800 tonnes per day processing capacity by the end of the second quarter of 2026, advancing to between 1,200-1,500 tonnes per day by the third quarter of 2027.

O'Donnell noted that his current assumptions are more conservative, modeling average throughput of 570 tonnes per day in 2026, 820 tonnes per day in 2027, and 1,000 tonnes per day in 2028. The expansion is projected to drive silver equivalent production from approximately 760,000 ounces to 2.1 million ounces silver equivalent.

Capital Investment and Infrastructure Development

The analyst projects US$21 million in capital expenditures over the 2025-2028 period, covering tailings management and new plant and mining equipment. A paste plant will be constructed with the capability to divert 300 tonnes per day into underground backfill, utilizing extensive existing underground workings to minimize use of remaining overground tailings capacity.

Additionally, a new fully permitted 5.8 million tonne dry stack tailings facility will be built to provide a long-term tailings solution. O'Donnell emphasized that "completing both on time is a key part of the ramp up process, as utilising the current storage alone would limit production to 500tpd until September 2027."

Cost Structure and Economic Projections

The company expects unit costs to decline to approximately US$91 per tonne mined and milled, indicating unit costs of US$16 per ounce silver equivalent once the ramp-up is achieved. O'Donnell's financial projections assume annual revenue of US$73 million and EBITDA of US$37 million by 2028, based on commodity prices of US$3,500 per ounce gold and US$36 per ounce silver.

The analyst expects US$6 million in EBITDA for 2025, rising substantially to US$37 million by 2028 as the expansion progresses and operational efficiencies are realized.

Exploration Program and Resource Expansion

The CA$6 million exploration program funded by the recent capital raise will focus on the highly prospective Eastern District. This program aims to inform longer-term mill feed strategies, including potential grades and recoveries, while assessing whether further expansion beyond current plans is feasible.

Risk Factors and Operational Considerations

O'Donnell acknowledged potential operational challenges during the ramp-up period, noting that "given management has highlighted the likelihood of downtime during the ramp up, we are leaving our forecasts unchanged for the time being." The analyst emphasized that equipment sourcing and ordering for phase one expansion reduces delay risks, as "the increase in nameplate capacity is likely to be achieved before throughput is ramped up consistently."

The successful completion of both the paste plant and new tailings facility represents critical execution milestones, as delays could constrain production capacity until alternative solutions are implemented.

Investment Outlook and Valuation

Despite the conservative forecasting approach, O'Donnell maintains confidence in the investment thesis, stating that "the recent raise means that all of this can be achieved from existing resources while our current target price demonstrates attractive upside despite the conservative forecasts." The combination of operational expansion, cost reduction initiatives, and exploration upside in the Eastern District supports the continued Buy recommendation.

With equipment procurement already underway and permits in place, Sierra Madre appears positioned to execute its aggressive expansion timeline while maintaining financial flexibility through the recent capital raise.