Silver Prices Soar, But Supply Lags Behind

Silver prices have surged significantly in recent times, but surprisingly, this sudden increase has not been met with a corresponding rise in supply. First Majestic Silver (TSX: AG) (NYSE: AG), a company that operates mines in Mexico and the US, offers an interesting example of this phenomenon.

The company's production levels have remained relatively stable, but the higher silver prices have translated to much larger profits. For instance, when silver was priced around $32 per ounce, First Majestic generated between $30 million and $40 million in quarterly free cash flow. However, with silver prices surging, this figure has jumped to around $220 million to $250 million.

Management at First Majestic notes that developing new mines is a complex process that can take up to 18 years from discovery to production. This means that investors may not see the benefits of increased supply in the near future.