Sierra Madre: Q1 Revenue Gains, a Cash-Cost Fix in Progress, and a Drill-First Del Toro Plan

Sierra Madre Gold and Silver (TSXV: SM; OTCQX: SMDRF) delivered a much stronger quarter at its La Guitarra mine complex in Mexico, and CEO Alex Langer spent a June 26 interview on The KE Report addressing the number investors question most: cash cost. His case is that $42.55 per silver-equivalent ounce is inflated by temporary spending on catch-up development and rented equipment, not by the underlying operation. Meanwhile, the two-phase mill expansion is approaching its first milestone, and the newly closed Del Toro acquisition adds a second project with a low-capex restart path.

**Q1 2026: revenue up, costs under scrutiny**

For the quarter ended March 31, 2026, the company reported selling 69,006 ounces of silver and 1,038 ounces of gold — 128,827 silver-equivalent ounces (AgEq, a measure that converts gold output into silver ounces at prevailing prices). Gross silver revenue reached $5.9 million ($85.14 per ounce) and gold revenue $5.1 million ($4,906 per ounce), up from $2.3 million and $2.9 million respectively in Q1 2025.

Langer said adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $2.8 million, about $1.3 million higher than a year earlier. The company also reported $3.5 million of cash from operations, a $3.61 million gross profit, and $13.2 million in cash and short-term investments with $14.4 million of working capital at quarter-end.

The sticking point is cash cost — the direct cost of producing an ounce — at $42.55 per AgEq ounce. The host said it is the question he hears most from listeners, and Langer answered with three specific fixes.

**Three ways the costs come down**

First, ore quality. Langer said less than half the ore processed recently has come from the defined resource. Mining lower-grade, off-resource material at today's high prices generates income now and, he argued, preserves higher-grade ore and extends mine life. As mining sequences across the complex's three producing mines — La Guitarra, Coloso and Nazareno — are fully lined up, he expects grades to rise and unit costs to fall.

Second, development. The underground operation now has 18 working phases — distinct areas opened up for mining — versus 6 at start-up, with a target of 25 to 30. Langer expects to reach that within about a quarter and said catching up on development alone should remove about $10 per ounce. A contractor hired this spring to accelerate development at Coloso and Nazareno is working at full speed, which frees Sierra Madre's roughly 350 employees to focus on the La Guitarra mine ahead of higher throughput.

Third, equipment. The company has bought about $9 million of equipment over the last three quarters, and Langer said rental costs — roughly $5 of the current per-ounce figure — have already come down substantially.

**The two-phase expansion**

Phase one lifts mill throughput from about 500 to 750-800 tonnes per day (tpd). Langer said the cone crusher is complete, the ball mill is being installed, and the team budgets three months to reach the new rate, though he expects to get there faster with little downtime.

There is a capex bonus: the purchased ball mill is rated at roughly 900-1,000 tpd — more than phase one needs — so phase two may not require a second mill. Spare crushers available at Del Toro could also reduce the cost of adding crushing capacity.

Phase two targets 1,200-1,500 tpd, roughly doubling capacity again; the host cites mid-2027 and the video notes point to Q3 2027. Either timeline depends on a fully permitted 5.8-million-tonne dry-stack tailings facility (tailings stored as compacted, drained stacks rather than held behind a dam), with construction starting in October and taking about a year. Langer said contractor mining plus Sierra Madre's own crews give him confidence the larger mill can be fed.

**Del Toro: drill first, decide later**

The Del Toro acquisition from First Majestic Silver closed on June 22 after about six months, which Langer said was as expected. He called the complex — a 3,000-tpd plant built in 2014 and shut down in 2020, with three mines — one of the newest he has seen. The first move is exploration, not production.

Field teams are sampling and mapping and hiring geologists, and the first drilling phase totals close to 30,000 metres (the video notes describe a 30,000-50,000 metre program), with Langer expecting several drills turning next year. The stated goal is to grow the historic resource of about 18 million silver-equivalent ounces toward 25 million ounces in the vein material alone.

Beyond the veins, he pointed to potential carbonate replacement deposits (CRDs — large metal-bearing bodies that replace limestone), citing a neighbouring Pan American mine he called one of Mexico's most prolific CRD operations. He also noted a large copper skarn (a deposit type that can host major tonnages) called Guanate, owned by Grupo Mexico, touching the property boundary. Del Toro is polymetallic — lead, silver, zinc and copper — with historic intercepts of 2-3% copper over multiple metres, and Langer sees a possible three-concentrate operation: lead-silver, zinc and copper.

On a restart, he was specific: about a year to turn the plant on and roughly $10 million of capex, fundable from cash flow, an offtake agreement, or the treasury after a recent financing. The plant as built runs at a minimum of about 2,000 tpd, so the plan is to add a smaller 800-tpd ball mill — a $1-2 million item, he noted — and start at 800 tpd on veins averaging about 350 grams of silver per tonne. At 25 million ounces, he sees roughly a 10-year mine life at that rate, with room to double throughput later. Toll milling — processing ore from nearby mines that lack mills — could fill spare capacity in the meantime.

**La Guitarra's exploration upside**

Production funds the other half of the thesis. Langer said the team has spent a year consolidating data on about 60 kilometres of veins and has dewatered historic workings including the El Rincon mine, and is close to finalizing drill targets. Permits come next, then a campaign announced at 20,000 metres that he expects to grow to 30,000 metres, starting in the second half of 2026. He also noted the district was Mexico's third-most-productive silver and gold camp in colonial times. Across both projects, he floated a combined 60,000-80,000 metre program — a large drill plan for a junior of this size.

**What to watch**

Asked why the valuation lags the asset base, Langer said it is on management to execute. He pointed to falling cash costs, each throughput and mine milestone as a de-risking step, possible ETF buying as production grows, and exploration results as the catalysts that matter. The near-term calendar is full — phase-one commissioning news, unit-cost trends, the October tailings start, and the first Del Toro drill plans. One disclosure from the episode: the host states he is a Sierra Madre shareholder and may buy or sell shares at any time.