First Majestic Silver (AG) is a mining company with five operating silver mines in Mexico. True to its stock market ticker (AG is the symbol for silver in the periodic table) it claims to be the world's purest silver producer based on the fact that it mines only 9% by-products. The present market capitalization of AG is $1.84B, the trailing P/E is 20, but the forward P/E is in the single digits at 7.6.
AG acquired SilverMexx in 2012 and is in the process of integrating and expanding the La Guitarra mine which was added to the business as part of this deal. It also just announced the start of production at the Del Toro Mine which will be responsible for significant growth in coming years. Another organic growth project, the La Luz Mine, is expected to go into production by 2015, underpinning an impressive growth plan for the company.
AG's performance throughout the ongoing silver price correction has been outstanding as illustrated by the chart below. To our knowledge, AG is the only silver miner that managed to outperform the silver streaming company Silver Wheaton (SLW) during this period. The share price has taken a disproportionate hit over the past few weeks, owing to the failed takeover bid for Orko Silver (OTC:OKOFF). Last week's presentation of AG's 2012 Financial Results was therefore eagerly awaited by shareholders.
The 2012 report certainly did not disappoint. Silver production grew by 20% in 2012 to 9.1m silver-equivalent ounces. Even more importantly, cash costs per mined tonne of ore remained at the same level as the year before. At $28.5 cost per tonne the cost is among the lowest among their peers. The reported cash cost of $9.08 per ounce silver Is up from the year before by 13%, apparently due by higher cost of consumables. Costs at the La Guitarra Mine are still significantly higher compared to the other operations leaving room for further improvement for the current year.
AG recorded a 12% drop in realized silver price, but still managed to generate a healthy net income of $88.9M. Cash and cash equivalents at the end of 2012 were reported at $111.16M, plus the break fee that has been received as a result of the failed Orko deal since then.
The outlook for 2013 includes another 40% rise in silver production to 12.3M to 13M ounces as a result of ramping up the Del Toro mine and expansions at the La Guitarra Mine and the San Martin Mine. With lots of cash at hand and depressed share prices for fellow silver miners, another acquisition is certainly not a possibility to be dismissed.
The present dip in silver price in combination with the drop due to the Orko deal has resulted in a share price for AG that we consider a remarkable bargain for investors who believe in another silver rally. Interested investors might wish to keep an eye on the silver price and consider a purchase as soon as silver shows signs of recovery.