First Majestic Silver: Accumulate During Summer Weakness

Jun. 7.11 | About: First Majestic (AG)

First Majestic Silver (NYSE:AG) is a Canadian based silver mining company with three operating mines and two development projects in Mexico. The company reports its earnings in U.S. dollars and in December of 2010 listed on the NYSE under the ticker symbol AG.

Revenues jumped to $55.3 million as silver production rose to 1.77 million ounces during the first quarter of 2011.

Foreign exchange losses narrowed from $3.2 million in the first quarter of 2010 to $25,000 in the most recent quarter.

Net income rose from $442,000 in the first quarter of 2010 to $23.9 million on the back of higher silver production and prices.

Cash flow from operations exploded to $34.4 million compared to $6.3 million a year ago.

Production at La Encantada totaled 1.1 million payable ounces of silver during the first quarter of 2011. Additional diamond drilling to confirm additional reserves and resources and increase production levels has been completed in the last six months.

The La Parrilla mine near the city of Durango, Mexico, produced 308,757 payable ounces of silver as work continues on increasing production and upgrading the mineral resource estimate. Mine expansion should be completed later this year.

The San Martin Silver Mine produced 311,817 payable ounces of silver in the first quarter of 2011 as exploration and drilling continues to better define the newly discovered La Esperanza vein.

The Del Toro Silver Mine is an advanced stage development project located about 60 km to the southeast of the La Parrilla Silver Mine. The project consists of two old silver mines located within one kilometer of each other.

Del Toro is currently under construction with an infill drilling program in progress and an updated 43-101 report scheduled to be released in the third quarter of 2011.

First Majestic continues to negotiate with the Municipality of Chalchihuites regarding a water treatment plant. Underground mining infrastructure work is moving forward with production expected to commence in 2012.

Investors looking to invest in physical silver products should check out First Majestic’s online store where one can purchase silver bars and coins along with other items at a slight premium to the spot price.

During the conference call management discussed the possibility of a dividend in a year’s time and they hope to have an updated 43-101 on all the properties completed by the end of the year.

First Majestic is one of the few companies increasing production without the production or cost difficulties inherent in most of its peers.

While most silver stocks struggle with production, legal, sovereign, inflation and cost issues, First Majestic has avoided those issues and executed its business plan to perfection.

First Majestic looks to be pulling back to the $17.50 level where it made a double bottom after the April sell-off. At these levels, investors should look to average into positions over the seasonally slow summer timeframe.

The recent pullback represents a buying opportunity for investors in one of the leading stocks in the silver mining sector.

Sources: Q1 conference call, MD&A, and earnings press release.

Disclosure: I am long AG.