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A Katusa Research
Special Situations Alert
Special Situations Alert
Sierra Madre owns a producing silver mine in Mexico's Silver Belt, is halfway through doubling its mill, and just bought a second fully-permitted mine from First Majestic, the company that now owns roughly a quarter of it.
In the silver space, almost everything is pre-revenue. Sierra Madre is not. La Guitarra reached full commercial production on January 1, 2025 and has now delivered six straight quarters of revenue: US$24.96M in FY2025, a record US$10.11M in Q1 2026, and US$8.23M in Q2 2026. Mill capacity is going from 500 tpd to 750–800 tpd before the end of Q3 2026, and to 1,200–1,500 tpd by Q3 2027, with no additional permits required. On top of that: the Del Toro silver mine, closed June 2026, a US$175 million build with three underground mines and 3,000 tpd of installed flotation capacity sitting on care and maintenance. And a 30,000-metre drill programme starting on 59 km of untested veins.
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Silver peaked near US$121 an ounce in late January 2026 and has since pulled back to a spot price of around US$64, a little over half the high. The equities followed the metal down, and in most cases overshot it. What is left behind is a sector where the market is again pricing exploration stories as if the drill will never turn, and pricing producers as if the mill will never run.
That move is not abstract for a producer. Sierra Madre realized US$75.65 per ounce on the silver it sold in Q2 2026, against US$33.36 in the same quarter of 2025, and US$75.45 per silver-equivalent ounce against US$33.22. Higher prices are already in its reported numbers.
That is the gap. Because the difference between a story and a business is whether concentrate leaves the gate. Sierra Madre Gold and Silver (TSXV: SM · OTCQX: SMDRF) is a junior silver company that can point at revenue, gross profit, and a growth plan management expects to fund from its own cash flow rather than the next financing.
The company operates in Mexico, the world's largest silver-producing country, at 202.2 million ounces in 2023, roughly a quarter of global mine supply. Its flagship La Guitarra mine complex sits in the Temascaltepec district, 130 km southwest of Mexico City: a fully-permitted underground mine and 500 tonne-per-day crushing, grinding, and flotation plant, on a 39,714-hectare land package with 59 kilometres of mapped mineralized structures that have barely been drilled with modern equipment.
In February 2026 the exchange named Sierra Madre one of the TSX Venture 50, its annual ranking of the top-performing companies on the TSXV. Four months later, the company closed the acquisition of a second permitted silver mine from First Majestic Silver, which now holds roughly 24.7% of Sierra Madre's shares and is the largest shareholder on the register.
Sierra Madre's portfolio is unusually simple to understand, and that is the point. There are two mines with mills, permits, portals and processing circuits already built (both acquired from the same vendor, First Majestic Silver). One mine is producing today. The other is the growth engine.
The flagship and the entire revenue line. Three underground mines (Guitarra, Coloso and Nazareno) feed one central crushing, grinding and flotation plant. It produced from 1992 to 2018 under previous owners, then sat idle; Sierra Madre bought it, rebuilt it, and reached full commercial production on January 1, 2025. It is now the platform: cash flow from La Guitarra is what funds everything else.
The second act, closed June 22, 2026. First Majestic spent US$175 million building Del Toro and ran it from 2013 to 2019 before putting it on care and maintenance. Sierra Madre now owns three developed underground mines, +60 km of underground development and a 3,000 tpd flotation circuit, infrastructure that would cost a fortune and a decade to permit and build from scratch. The plan is the La Guitarra playbook, repeated.
La Guitarra is not a discovery; it is a restart that worked. The mine produced from 1992 to 2013, then Coloso carried output from 2014 to 2018 before the previous owner put it on care and maintenance. Sierra Madre acquired it from First Majestic in a May 2022 agreement for US$35 million in consideration shares, rebuilt the operation, and declared full commercial production on January 1, 2025.
What the company actually owns is a district, not a single vein. District-scale mapping has delineated 59 kilometres of mineralized quartz veins and breccias. More than 1,400 historic drill holes totalling 236,000 metres exist on the ground, nearly all of it clustered in the West District, where every tonne of modern production has come from.
The Guitarra vein system consists of 10 veins explored over 3.5 km with a known vertical extent of 700 metres. Coloso has been traced over 2 km and remains open below 400 metres. Coloso's resource grades average 1.7× higher silver and 1.2× higher gold than the Guitarra Mine veins, which is why the company brought in a contractor, which began operations in mid-June 2026, to accelerate development into Coloso and Nazareno. Comales Nazareno outcrops for roughly 3.7 km.
Mapping has identified +25 km of metasediment-hosted veins and +13 km of volcanic-hosted veins in the East District, with historical shoots up to 750 metres long. The former El Rincón mine ran a head grade of 6.5 g/t gold and 850 g/t silver; historic production grades from other veins in the district range from 384 to 611 g/t silver and 0.88 to 4.9 g/t gold. Sierra Madre received drill permits for 22 drill pads on July 14, 2026, and now expects drilling to start in Q4 2026. A US$3.5 million first phase, guided by an integrated 3D structural model, opens a +30,000 m programme designed to test up to 60 veins: the first modern, systematic drilling the East District has ever seen.
Sierra Madre's 2023 estimate was the first project-wide mineral resource ever completed for La Guitarra and the Temascaltepec district. It came out of validating the project database, auditing previously mined areas, and rebuilding the geological interpretation, and it grew the resource base substantially.
| Class | Tonnes | AgEq (g/t) | Ag (g/t) | Au (g/t) | AgEq oz | vs. prior |
|---|---|---|---|---|---|---|
| Indicated | 3,842,000 | 220.2 | 146.3 | 0.96 | 27,207,000 | +373% |
| Inferred | 4,105,000 | 153.0 | 113.0 | 0.52 | 20,199,000 | +204% |
Source: NI 43-101 Technical Report, La Guitarra Mineral Resource Estimate, Guitarra Silver-Gold Project, effective October 24, 2023, prepared by TechSer Mining Consultants Ltd.; QPs David Thomas, P.Geo. and Cristian Garcia, P.Eng. Estimate uses US$22/oz silver, US$1,700/oz gold and a 77.27:1 Au:Ag ratio, with cut-off grades based on mining and milling costs of US$50/t (cut and fill) and US$38/t (long-hole) and 70% net payable recovery. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Indicated resources by mine: Guitarra 1,649,000 t at 123 g/t Ag and 1.25 g/t Au; Coloso 432,000 t at 221 g/t Ag and 1.61 g/t Au; Nazareno 310,000 t at 215 g/t Ag and 0.55 g/t Au. Numbers may not add due to rounding. Full report available under Sierra Madre's profile at sedarplus.ca.
On June 22, 2026, Sierra Madre closed the acquisition of the Del Toro Silver Mine in the Chalchihuites district of Zacatecas State from First Majestic Silver. This is the same counterparty, and the same playbook, as La Guitarra: buy a permitted mine with infrastructure already in the ground from a major that has moved on, and restart it.
First Majestic operated Del Toro between 2013 and 2019 and spent US$175 million building it. What Sierra Madre now owns: three underground mines (San Juan, Perseverancia, Dolores) accessed through surface portals, +60 km of underground development, a 3,000 tpd flotation processing circuit with three mills (3,650 tpd total installed capacity), a permitted dry stack tailings plant with roughly 12 years of capacity at 2,000 tpd operations, plus a process plant, analytical laboratory, workshops, water management, power substations and power lines. Between 2015 and 2018 the mine produced an average of 2.54 million AgEq ounces annually.
US$20 million in cash plus 10,870,000 Sierra Madre shares at a deemed C$1.30 at closing. A further US$10 million is payable within 18 months, and two US$10 million milestone payments follow: one on filing a resource of at least 100 Moz AgEq within 48 months, one on reaching 4,000 tpd commercial production for 30 consecutive days within 60 months. Funded by a C$57.5 million private placement completed in January 2026.
Four geologists and ten helpers, 30,000 metres of diamond drilling and 20,400 assays, including a 20% contingency. 23 identified deposits across skarns and mantos have been mapped on the property. Drilling is expected to start mid-2027; the company's August 2026 presentation targets a new resource report for early 2028.
Mining equipment US$5.3M, plant US$2.3M, lab US$1.0M, contingency US$1.7M. Mining development restart cost of US$5 million may be funded out of cash flow. The company aims to later double throughput to 1,600 tpd. Carrying costs are approximately US$2 million a year in the interim.
Del Toro sits in Chalchihuites, a district discovered between 1546 and 1556 during the Spanish colonial period and worked intermittently ever since. Mineralization is CRD: carbonate replacement deposits, the most prolific style of silver deposit in Mexico. Sierra Madre's new neighbours are not junior explorers: San Martín (Grupo México), Sabinas (Peñoles) and La Colorada (Pan American Silver) are all located near the Chalchihuites village. Geology is Cretaceous calcareous rocks intruded by Eocene-age bodies, with NW–SE and N–S vein systems that develop breccia zones and chimney structures at their intersections.
| Historic Del Toro MRE (2020) | Tonnage (kt) | Ag (g/t) | Au (g/t) | Pb (%) | Zn (%) | AgEq (g/t) | AgEq (koz) |
|---|---|---|---|---|---|---|---|
| Total Measured & Indicated | 592 | 201 | 0.43 | 3.90 | 4.27 | 398 | 7,570 |
| Total Inferred | 1,186 | 183 | 0.15 | 3.46 | 1.15 | 293 | 11,180 |
Phase 1 adds a new paste fill and thickener plant, a fourth ball mill and second cone crusher, and increased conveyor material-handling capacity. The cone crusher is installed and operating, ball mill installation is advancing with key site infrastructure complete, and thickener commissioning is underway. Phase 2 adds a permitted 5.8-million-tonne dry stack tailings facility, a second crushing circuit and replacement of a smaller ball mill, producing a finer −¼ inch product to increase recoveries. No additional permits are required for either expansion. Timelines are management estimates and forward-looking; see the disclaimer below.
The credential that matters most for this story is not a discovery record. It is whether the people involved have taken a care-and-maintenance mine in Mexico and made it produce again. This group has, twice, and the second one is in progress.
Photographs and biographies sourced from Sierra Madre's corporate website and its August 2026 corporate presentation. Verify current roles against the Company's filings at sedarplus.ca.
Share registers tell you who is actually in the trade. On Sierra Madre's, the free float held by retail and high-net-worth investors is the smallest of the four blocks, and the largest single holder is the operating company that sold it both of its mines.
First Majestic: shares are subject to staged resale restrictions following the Del Toro closing. Percentages shown on this page are as disclosed in the Company's August 2026 corporate presentation, which reports First Majestic at 24.7%. The June 22, 2026 closing news release described First Majestic's retained position as approximately 24.8% as at closing; the small difference reflects the two reporting dates.
Eric Sprott: participated in Sierra Madre's C$19.5 million brokered private placement (27,858,000 units at C$0.70) through 2176423 Ontario Ltd., a corporation beneficially owned by him, alongside Franklin Templeton, Commodity Capital and company management (see disclosed shareholders above). His individual subscription amount and resulting shareholding have not been publicly disclosed and are below early-warning reporting thresholds; he should not be assumed to hold a top-five position.
Most junior silver stories have one binary event. Sierra Madre has a production ramp, a first-ever modern drill programme, and a second mine coming out of care and maintenance, running in parallel, on published timelines, funded from a treasury that just repaid its debt in full. Here is the company's own schedule, followed by what each item actually means.
Dashed line marks the current quarter (Q3 2026). Bars left of it are underway or complete.
← Scroll the timeline sideways to see all quarters →
Source: Sierra Madre Gold and Silver Ltd. corporate presentation, September 2026, and its Q2 2026 results release of August 27, 2026, in which Phase I of the mill expansion is now expected on-line before the end of Q3 2026 and Del Toro drilling is now expected to start in mid-2027. The corporate presentation targets a new Del Toro resource report for early 2028; that target predates the revised drilling start and may move. All dates are management estimates and are forward-looking statements; they are not commitments and may change. ★ denotes a targeted mineral resource estimate or first production milestone.
Cone crusher installed and operating; ball mill installation advancing with key site infrastructure complete; thickener commissioning underway. Two generators come online in September, with a further unit being installed for Coloso and Nazareno. Management expects Phase I on-line before the end of Q3 2026, with higher production and a further reduction in unit costs. Throughput has since reached up to 672 tpd against a 500 tpd nameplate, though Q2 itself averaged about 457 tpd.
Permits for 22 drill pads received July 14, 2026. Phase one: seven holes of 1,000–1,500 m at Tlacotal, four holes at the Magdalena vein below historic workings, and three holes testing the productive Los Locos veins. The full programme is +30,000 m testing up to 60 veins on ground that produced the majority of the district's historic output and has never been systematically drilled.
Geologic mapping and sampling started immediately post-closing, with a re-evaluation of surveys underway; the company now expects drilling to start in mid-2027. The US$12 million, 30,000-metre programme runs 24–30 months and is intended to deliver the first current mineral resource Del Toro will have had. The August 2026 presentation targets that report for early 2028, a date set before the revised drilling start. 23 deposits across skarns and mantos have already been identified.
A permitted 5.8-million-tonne dry stack tailings facility, a second crushing circuit, and replacement of a smaller ball mill. A finer grind is intended to increase recoveries. No additional permits required.
A US$10 million budget for a rapid startup at an 800 tpd run rate, with the aim of later doubling to 1,600 tpd; production slated for mid-2028. Management has described Del Toro as silver-price optionality: the restart can be pulled forward if silver momentum continues, while US$2 million a year in carrying costs limits the downside while exploration completes.
US$2.5 million of the First Majestic loan repaid in March 2026; the facility fully repaid on July 8, 2026. The company exited Q2 with US$22.2 million cash and US$25.0 million working capital, and states both expansions are expected to be fully self-funded from treasury and cash flow.
Revenue went from a record US$10.11 million in Q1 2026 to US$8.23 million in Q2, and gross profit from US$3.61 million to US$1.58 million, despite higher metal prices, because fewer ounces were sold (123,483 versus 128,827). Net income was essentially breakeven at US$37,226. The company attributes the compression to development spending at Coloso and Nazareno, power outages, and weaker recoveries during ramp-up. Cash cost per AgEq ounce produced rose from US$42.55 in Q1 to US$49.28 in Q2, with all-in sustaining cost at US$54.73. That is a real margin squeeze, and it is the single most important number to watch in Q3.
The year-over-year comparison is also negative, and the page would be incomplete without it. Against Q2 2025, AgEq ounces produced fell from 146,963 to 137,313, AgEq ounces sold fell from 173,562 to 123,483, and gross profit slipped from US$1.69 million to US$1.58 million. Net revenue still rose, from US$5.76 million to US$8.23 million, because the average realized price per AgEq ounce more than doubled, from US$33.22 to US$75.45. Higher prices carried the revenue line; volumes and costs did not cooperate.
Yes, by several weeks, and the reason is worth understanding. While sourcing the mill for Phase I, the company found and bought a larger unit than planned, one it expects will cover the milling requirements of both phases. The extra foundation and electrical work that bigger mill required, plus shipping delays on other Phase I components, pushed completion out. Phase I is now expected on-line before the end of September 2026, and management still expects Phase II commissioning before the end of Q3 2027. So the slip is real, it is disclosed, and the trade-off was a larger mill for a later date.
No. Sierra Madre's decision to potentially place mines into production, expand, or carry out mining and processing is largely based on internal non-public company data and reports from previous operations. The Company is not basing production decisions on NI 43-101 compliant reserve estimates, preliminary economic assessments, or feasibility studies. There is therefore greater risk and uncertainty as to future economic results, including increased uncertainty of achieving any particular level of recovery or cost of recovery, and a higher technical risk of failure than if a feasibility study had been completed.
It is historical, not current. The 7.57 Moz AgEq M&I and 11.18 Moz AgEq Inferred figures come from First Majestic's own estimates with an effective date of December 31, 2020. A Qualified Person has not done sufficient work to classify them as current mineral resources, and Sierra Madre is not treating them as such. That is precisely what the 30,000-metre programme and the early-2028 resource report are for, and until that lands, there is no current resource at Del Toro.
A lot. At La Guitarra, with Q2 cash costs near US$49 and AISC near US$55 per AgEq ounce, margin is a direct function of the silver price and the Au:Ag ratio. Management has explicitly framed the Del Toro restart timing as a function of silver momentum. A sustained move down in silver compresses margin at the producing mine and pushes the second mine's economics out. Worth noting on the other side: the final US$10 million milestone payment to First Majestic only triggers at 4,000 tpd commercial production at Del Toro, five times the budgeted 800 tpd restart, so that obligation is a long way from being incurred.
Today, one mine and one 500 tpd mill in one country generate all of the revenue. A prolonged outage at La Guitarra (power, labour, permitting, geotechnical) is a company-level event until Del Toro produces, which is not planned until mid-2028 at the earliest.
A permitted silver mine already generating revenue in the world's largest silver-producing country, a mill on track to double, 59 kilometres of untested structures about to see the drill for the first time, and a US$175 million mine bought back from a major. Enter your email to get the full Sierra Madre breakdown and our latest silver research.
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Certain statements in this publication constitute forward-looking statements or forward-looking information within the meaning of applicable Canadian and United States securities laws, including National Instrument 51-102 of the Canadian Securities Administrators. Forward-looking statements include, without limitation, statements regarding: the timing and completion of the Phase I and Phase II La Guitarra mill expansions and the throughput levels expected from them; the project timeline and all dates shown in it; expected production, head grades, recoveries and costs; the timing and results of the East District, Del Toro and Tepic exploration programmes; the timing of any new mineral resource estimate for Del Toro; the potential restart of the Del Toro mine, its budget, run rate and production timing; contingent milestone payments; the sufficiency of treasury and cash flow to fund the expansions; and any anticipated market re-rating.
Forward-looking statements are necessarily based on estimates and assumptions made by Sierra Madre Gold and Silver Ltd. that are inherently subject to significant business, economic, competitive, political and social risks, uncertainties and contingencies, including: volatility in silver and gold prices and demand; the accuracy and veracity of information and projections sourced from third parties; that the Del Toro mine restart may not be completed or may exceed cost expectations; that production may not meet management's expectations; changes in the environmental, political, legal, regulatory and social environment in the jurisdictions in which the Company operates; potential labour disputes; interest rate and foreign exchange fluctuations; and the Company's ability to continue to fund its operations. Forward-looking statements are not guarantees of future performance and readers should not place undue reliance on them. Statements speak only as of the date of this publication. Neither Sierra Madre Gold and Silver Ltd. nor Katusa Research undertakes any obligation to update them except as required by law.
Material assumptions. In making the forward-looking statements referenced on this page, the Company has assumed, among other things: that silver and gold prices and the gold-silver ratio remain at levels that support continued operations and the planned expansions; that head grades, metallurgical recoveries and mill throughput perform in line with management's expectations and the 2023 mineral resource estimate; that the equipment, contractors, skilled labour and consumables required for the Phase I and Phase II expansions and for the planned drill programmes remain available on the expected timelines and at the expected costs; that the Company retains all necessary permits, licences, concessions and social licence to operate in Mexico, and that no additional permits are required for either expansion; that treasury and operating cash flow are sufficient to fund the expansions without further dilution; that the historical estimates and historical data relied upon for Del Toro are broadly reliable; and that political, legal, regulatory, taxation and foreign-exchange conditions in Mexico do not change materially. Should any of these assumptions prove incorrect, actual results may differ materially from those anticipated.
The Company's decision to potentially place a mine into commercial production, expand a mine, or otherwise carry out mining and processing operations is largely based on internal non-public Company data and reports from previous operations. The Company is not basing production decisions on NI 43-101 compliant reserve estimates, preliminary economic assessments or feasibility studies, and as a result there is greater risk and uncertainty as to future economic results, including increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery, and a higher technical risk of failure than would be the case if a feasibility study were completed and relied upon.
Share price, market capitalization and metal price figures shown on this page are retrieved from a third-party market data feed and may be delayed. The silver spot price of approximately US$64 per ounce is as at September 1, 2026. Market capitalization is presented in U.S. dollars and is calculated from the OTCQX share price (SMDRF) multiplied by shares outstanding, so no currency conversion is applied. The OTCQX listing is less liquid than the TSX Venture Exchange listing and its quoted price may differ from the Canadian dollar equivalent of the TSXV price; market capitalization calculated on the TSXV price would therefore differ. Silver’s January 2026 high of approximately US$121 per ounce is as reported by Investing News Network (US$121.62, January 2026) and is corroborated by the 52-week high on the COMEX continuous silver contract. Sierra Madre’s realized metal prices are as reported in its Q2 2026 results news release dated August 27, 2026. All such figures are provided for information only and should be verified against the relevant exchange before use in any investment decision.