First Majestic: The First of Many Majestic Quarters to Come

First Majestic Silver (FRMSF.PK) released production figures for the third quarter, and what a quarter it was, if you take into account what lies ahead over the next year. This Mexico-focused silver mine is firing on all cylinders, while the market still regards this high growth company as a micro-cap. It has a nice asset base as well as advanced stage projects necessary to achieve mid to high double digit production growth for the foreseeable future. As most are unfamiliar with this company as it only trades on the TSX and pink sheets, the following paragraphs provide a brief overview of their current operations as well as their pipeline. But first, a rundown of the current quarter.

• 1.1m ounces of silver production or a 30% year over year growth rate.
• Higher ore grades of 205 grams per tonne as opposed to 196 grams last quarter.
• This is spite of the fact the large La Encantada expansion project will not show revenue until the fourth quarter.

The Core Assets:

La Encantada silver mine is their highest grade mine, which lies on a 7,000 acre property. As if often the case, La Encantada also possesses the lowest cash costs of those in operation. To maximize peak production levels, a twenty one million dollar expansion project will soon enable 4m-5m ounces of production per annum. The reserve base is currently around 90m ounces, making this a 20+ year mine.

The La Parilla Mine has surpassed investors' expectations since it was acquired, at least in regard to the actual size. As the surrounding claims cover over 100,000 acres, there are numerous targets for near and long term exploration and development. Due to the size of this mine and the surrounding claims it has taken some time to commence production as operational improvements, mill expansion and modernizations have been ongoing for the last five years. In the process, a rather significant mining area in Las Vacas has been under development and is set to begin production in the coming year. Though nearly 88 million ounces of reserves and resources have been discovered, peak production levels remain a question. With the addition of production from Las Vacas, it wouldn’t be unreasonable to estimate peak production levels between 5m-8m ounces per annum.

The San Martine silver mine, which still has approximately 64 million of reserves remaining (which is significant given the fact it has been in operation since 1983), is expected to produce between 1m-2.0m+ oz per annum after the expansion project is complete.

Advanced Stage Projects:

Aside from the previously mentioned ramp up in production of their core mining assets, First Majestic’s growth spurt can also be contributed to new operations being brought online. The Del Toro silver mine will commence initial production early in 2010 and expected to produce 1m in approximately 3 quarters of operations.

Despite cash costs in excess of $8 per ounce in La Parilla and San Martine, La Encantada boasts costs bring down the average rather significantly, from over $7/oz in 2007 , $5.50/oz in 2008 and around $5/oz in the current fiscal year. Though costs for the Del Toro mine will likely be near $10/oz for the coming year, as well as La Parilla (the initial and ramp up stages can be costly), this should not be indicative of their overall operating efficiency as it will likely retreat back to between $5-$6 per ounce in 2011. First Majestic will see their production growth increase 3 to 5 fold over the period from 2008-2013, with the added bonus of being able to fund future growth organically via through there numerous mine claims in La Parilla. Given that First Majestic has yet to hit their stride, they executed a great quarter. When you take into account the lack of catalysts in terms of production, high double digit growth, improving ore grades and reasonable cash costs, First Majestic will reports a quarter that will likely go dismissed, but not for long.

Disclosure: Long FRMSF.PK

Comments

[stockermom:]

I have been trading this company for just over a year now and it is one of my favorites, one I plan on staying with for the long haul.

Oct 14 09:19 AM

[Ridge Hill ...:]

fortuna silver is a better play

Oct 14 09:23 AM

[Bobwins:]

I just bought into Fortuna. I like the long term approach of mgmt and the internally generated growth instead of issuing mass quantities of cheap shares. They look like a good longer term hold.

That said, I still like the near term catalysts for First Majestic. They still need to work out the kinks and prove to the markets that La Encantada can produce up to capacity. Like all major projects, it has been delayed and has caused the company to repeatedly lower guidance for 2009. But once fully online by year end, it should move First Majestic into the 6 million oz/yr production range, a dramatic 50% increase from current levels and lower costs at the same time.

This is the catalyst that gives FR the advantage, in my opinion, over FVI. As FVI advances their new mine construction, they will have the same type of catalyst but the timeframe is out 12-18months. Until then, they will be profitably producing 1.6 m to 2 million oz.

I also hold CDE and SLW because they are big cap and get the institutional money whenever gold and silver are rising.

Long shot? REX.v. C$.15 Just raised 3 million and about to start drilling Coneto project in the same area as several big silver mines. Mgmt is from Orko, that JV'd their initial project to PAAS.

Oct 14 10:08 AM

[secmaven:]

In sub dollar category look at Great Panther and ECU. Both have in ground resources that are growing faster than production. Either would be a acquisition fit for PAAS.

Oct 14 01:42 PM

[Slvrizgold:]

Mr. Hyperinflation, you have a good eye for quality undervalued PM stocks. I saw you pitching JAG and FRMSF is another GEM. I like First Majestic here because I think downside is limited if silver stalls in the midteens because of the production growth, lower costs, and improved cash flow. However, I absolutely love it because i think management goal of 12 million ozs silver equivalent is possible in the next few years and I like the potential massive upside F.M. represents. Consider if they had 10-12 million ozs prod. and silver was $50++. The cash flow would be ginormous. Price would explode to multiples of current $3. I like management as Neumayer has an excellent track record having built First Quantum Copper into a multibillion dollar company before leaving to form First Maj. 10 years from now he might regarded like a Rob McEwan or Ross Beaty. Another thing, I think there is ample room for consolidation upside with all the small Mexican silver juniors out there. Could SSRI buy out First Majestic? If they did they would be entering PAAS ballpark on the production front and would have hands down the largest silver resources of any company out there. Or conversely, First Majestic could pick up another junior off the floor.

Imo, FRMSF broke out today to a new 52 wk high and I would aggressively add on any slight pullback/retest. I think this company will never trade as low as it did in the past year. jmo

Oct 14 09:10 PM

[Hyperinflation:]

Yes, lots of potential. Though my favorite silver play is Silver Wheaton, I also hold interests in ECU silver, Coeur d'Alene, Silver Standard, and MAG Silver.


On Oct 14 09:10 PM Slvrizgold wrote:

> Mr. Hyperinflation, you have a good eye for quality undervalued PM
> stocks. I saw you pitching JAG and FRMSF is another GEM. I like
> First Majestic here because I think downside is limited if silver
> stalls in the midteens because of the production growth, lower costs,
> and improved cash flow. However, I absolutely love it because i
> think management goal of 12 million ozs silver equivalent is possible
> in the next few years and I like the potential massive upside F.M.
> represents. Consider if they had 10-12 million ozs prod. and silver
> was $50++. The cash flow would be ginormous. Price would explode
> to multiples of current $3. I like management as Neumayer has an
> excellent track record having built First Quantum Copper into a multibillion
> dollar company before leaving to form First Maj. 10 years from
> now he might regarded like a Rob McEwan or Ross Beaty. Another
> thing, I think there is ample room for consolidation upside with
> all the small Mexican silver juniors out there. Could SSRI buy
> out First Majestic? If they did they would be entering PAAS ballpark
> on the production front and would have hands down the largest silver
> resources of any company out there. Or conversely, First Majestic
> could pick up another junior off the floor.
>
> Imo, FRMSF broke out today to a new 52 wk high and I would aggressively
> add on any slight pullback/retest. I think this company will never
> trade as low as it did in the past year. jmo

Oct 26 09:25 PM