First Majestic Silver Corp. (NYSE:AG) shares have been on a tear the past few weeks, with gold (GLD, DGP) and silver (SLV, AGQ) mining stocks breaking out of their doldrums. The recent purchase of Silvermex has also been completed, adding a fourth operating mine with upside potential.
First Majestic had been watching Silvermex and the La Guitarra mine for five years and had the impetus to strike while the market was most attractive. La Guitarra is expected to add 400,000 ounces of silver over the second half of 2012, and total silver equivalent ounce guidance has been raised from 8.8-9.3 million ounces to between 9.2 million and 9.5 million ounces.
On August 13, 2012, the final permit for a 4,000 tpd plant at Del Toro was received by First Majestic shortly after the updated Del Toro NI 43-101 Technical Report. The new report contains a decrease in total tonnage of 9% in the Measured and Indicated categories and 19% in the Inferred category. However, the real news is a 20% increase in the Measured and Indicated silver grade leading to Measured & Indicated Resources increasing to 76.5 million ounces and Inferred Resources increasing to 81.8 million ounces.
Despite drought problems at San Martin and lower grades at La Parrilla and La Encantada production increased during the second quarter on both a year-over-year and month-over-month basis. The installation of the new ball mill at La Encantada has increased recoveries with work continuing on the manganese problem. Recoveries have improved from 43% in the first quarter to 55% for several days during the month of June.
One aspect not known or recognized by most investors is the environmentally and community friendly approach taken by First Majestic. At La Parrilla, a new tailings filter was installed re-circulating over 80% of the water into the milling process, allowing for a smaller tailings pond footprint and almost eliminating the risk of groundwater contamination. This tailings filter was first completed at La Encantada and expanded over all of the companies' mines by early next year.
Furthermore, the recent severe drought caused the Bolanos river near the San Martin mine to run dry. First Majestic acted fast and built a 10km pipeline from a water source near the mine to the town. These actions and others have earned First Majestic the "Socially Responsible Business Distinction Award" for the fourth year in a row by the Centro Mexicano Para La Filantropia or Cemefi.
Not only does First Majestic succeed at the Bay Street level, delivering consistently strong returns to shareholders, but at the local level as well in a socially responsible manner, assisting the communities in which they operate.
The premium valuation is more than justified by owning one of the top managements in the gold and silver sector. First Majestic has led the industry by example delivering on guidance at the financial level and by leading at the social level, giving back to their communities as well.
Disclosure: I am long AG, DGP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.