First Majestic Corporation: The Long- And Short-Term Possibilities

Apr.17.12 | About: First Majestic (AG)

Having had the benefit of an exclusive interview with Keith Neumeyer, President and CEO along with Todd Anthony, Investor Relations Manager Jill Arias, VP of Marketing we took the plunge and bought First Majestic Silver Corporation (NYSE:AG) for the an average cost of $13.13, back in February 2011.

So, with "skin in the game" as they say, we do tend to keep an eagle eye on the small number of stocks that we own in the silver mining space, especially their recently released first quarter production results, where AG's three mines in Mexico managed to produce 2,007,219 equivalent ounces of silver.

The total equivalent silver production for the quarter consisted of 1,826,803 ounces of silver, representing a 7% decrease compared to the prior quarter but an increase of 3% compared to the same quarter in 2011. In addition, 3,176,662 pounds of lead was produced representing a 7% decrease from the previous quarter and an increase of 167% compared to the same quarter in the previous year and 1,320,726 pounds of zinc was produced compared with 152,664 pounds from the previous quarter and none in the same quarter of the previous year. Also, 611 ounces of gold was produced, representing an increase of 39% compared to the previous quarter and an increase of 74% compared to the first quarter of 2011.

The company is pleased to announce that the new La Parrilla cyanidation circuit has been deemed commercial effective March 1, 2012. Effective March 1, 2012, all revenues and costs will henceforth be treated as normal course operations and recorded in the Company's income statement. The connection of the new power line to the national grid and the construction of the Merrill-Crowe circuit are now completed. The installation of the new tailings filters is expected to be completed during the second quarter.

Keith Neumeyer, President & CEO of First Majestic states, "our focus in the first quarter paid off with the completion of the new cyanidation circuit at La Parrilla. With two major construction projects underway our operations staff deserve to be commended by achieving close to budget in this quarter. The way is now paved for a great start to 2012".

Production Details Table:

Consolidated

Quarter Ended
March 31,
2012

Quarter Ended
March 31,
2011

%
Variance
Prior Year

Ore processed/tonnes milled

558,183

456,506

22%

Total production - ounces of silver equivalent

2,007,219

1,825,366

10%

Total commercial production - ounces silver equivalent

1,976,763

1,825,366

8%

Silver ounces produced

1,826,803

1,769,208

3%

Pre-commercial silver ounces produced

28,639

-

100%

Silver Grade (g/t)

177

211

(16)%

Silver Recovery (%)

57%

57%

-

Pounds of lead produced

3,176,662

1,187,912

167%

Equivalent ounces from lead

92,859

38,340

142%

Lead Grade (%)

1.9

1.7

12%

Lead Recovery (%)

89%

87%

2%

Pounds of zinc produced

1,320,726

-

100%

Equivalent ounces from zinc

37,273

-

100%

Gold ounces produced

611

351

74%

Equivalent ounces from gold

36,168

16,751

116%

Equivalent ounces from iron

14,116

1,067

1223%

Click to enlarge

Other Developments:

The total ore processed during the quarter at the Company's three operating silver mines, the La Encantada Silver Mine, the La Parrilla Silver Mine and the San Martin Silver Mine, amounted to 558,183 tonnes milled representing a decrease of 1% over the previous quarter due to fewer operating days. The average head grade in the quarter for the three mines decreased by 12% over the previous quarter to 177 g/t of silver. The combined recoveries of silver increased from 54% to 57% in the quarter.

The company's underground development, including Robbins raises in the first quarter consisted of 16,088 metres, compared to 12,841 metres completed in the previous quarter. There were 29,194 metres of diamond drilling completed in the quarter compared with 19,916 metres of diamond drilling in the fourth quarter 2011 representing a 47% increase. The expanded exploration program consists of definition drilling to define Reserves and Resources at the company's three operating mines to assist in mining activities and at the Del Toro Silver Mine which is being prepared for production later in 2012. The company had 19 diamond drill rigs operating during the first quarter.

First Majestic Silver Corp., is committed to building a senior silver producing mining company based on an aggressive development and acquisition plan with a focus on Mexico. The company presently owns and operates three producing silver mines in Mexico; Production from these three mines is anticipated to be between 8.8 to 9.3 million ounces of silver equivalents or 8.2 to 8.7 million ounces of pure silver in 2012.

First Majestic Corporation has a market capitalization of $1.66 billion, a P/E ratio of 16.05, a 52 week trading range of $13.35 to $24.56, an EPS of $0.96, with an average volume of around 800 thousand shares traded per day and trades in Toronto under the symbol of FR and on the NYSE under the symbol of AG.

Click to enlarge
(Click to enlarge)

Taking a quick look at the chart we can see that it has been roller coaster ride since we made our purchase with the stock oscillating with every twist and turn of the silver market, closing yesterday at $15.41, giving us a paper profit of 17.4%.

Watch this crossover as it is usually negative for stocks if it continues. The technical indicators suggest that it is oversold at the moment so we may see a bounce back.

In conclusion we will continue to hold this stock for the long term and should the current volatility in the silver producing investment space present us with a "bargain" of an opportunity then we will look to increase our exposure to First Majestic Corporation.

Having said that we must point out that we have not increased our exposure to the precious metals mining sector since making this purchase as this sector has failed in our view to keep up with the price of the underlying commodity. The same can be said for the gold miners, they to have performed very poorly of late.

Now, for those of you endowed with the cavalier spirit you could consider AG as a short term vehicle to play the options market. The above chart clearly demonstrates the volatility of this sector, so all you have to do is to be on the right side of the trade at the right time. Not for the faint hearted but it is a strategy that has generated handsome profits for us over the last few years. As always go gently with them and only allocate a small portion of your "opportunity cash" to such ventures.

Disclosure: I am long AG.