First Majestic Silver Corp: A Silver Gem

By Bob Kirtley

06 February 2013

Introduction

We first met with Keith Neumeyer, President and CEO at a Silver Summit in London a good few years ago and from that meeting we decided to watch the development of First Majestic Silver Corporation (FR:TSX || AG:NYSE) with the view to making an investment. As our interest grew we were fortunate enough to get an exclusive interview with Keith along with Todd Anthony, MBA, Investments Relationships Manager and Jill Arias, VP of Marketing. Following this interview we took the plunge and made our first purchase for a cost of $13.13, which was back in February 2011.

A few days ago we managed to catch up with Todd regarding the startup of Del Toro, this is what he had to say:

“We are excited to announce Del Toro’s recent production startup and look forward to the next few quarters as the mine ramps up to it’s full throughput rate of 4,000 tonnes per day. At this rate, Del Toro is expected to become First Majestic’s largest mine producing approximately 6M ounces of silver per year. 

Given the current weakness in the equity market, along with the added downward pressure resulting from the arbitrage trade from the Orko acquisition, investors now have an opportunistic window to look for an entry point into First Majestic as an investment vehicle for higher silver prices.”

As we see it this is a very exciting milestone which has been achieved and it certainly bodes well for future production, turnover and profits.

The following is an excerpt from a recent AG news release:

Underground development within the three mines which comprise the Del Toro Silver Mine (San Juan, Perseverancia/San Nicolas and Dolores) has produced 97,700 tonnes of stockpiled ore which is currently supplying feed to the processing plant. Commercialization of the 1,000 tonnes per day (tpd) flotation circuit is anticipated by April 1, 2013. Further development in the first half of 2013 will be focused on preparing the mines for phase two of production, which will include the addition of a 1,000 tpd cyanidation circuit. Phase two start-up is expected by July 1, 2013, at which time, the mill is expected to be running at a combined throughput rate of 2,000 tpd (1,000 tpd flotation and 1,000 tpd cyanidation).

The Company also remains on schedule for the third and final phase of production (2,000 tpd flotation and 2,000 tpd cyanidation) by the third quarter of 2014 at which time Del Toro is expected to become the Company’s largest operation and is projected to produce at an annualized rate of approximately 6 million ounces of silver per year, and significant amounts of lead and zinc.

It is well known that First Majestic is committed to building a senior silver producing mining company through an aggressive development and acquisition strategy so the production from these five mines of between 12.3 to 13.0 million ounces of silver equivalents or 11.1 to 11.7 million ounces of pure silver in 2013 looks to be in reach.

First Majestic Chart:

Taking a quick look at the chart we would draw your attention to the RSI, which has recently traded below the ‘30’ level suggesting that this stock is oversold. We have highlighted the three occasions when this has happened and each time it has been followed by a rally to higher price levels. Technical indicators are far from perfect but this does suggest that a rally from here could be on the cards. This is something that the company also noted in a recent missive sent to us by Todd Anthony. Please note that you can also receive updates directly from AG, just go their Home Page and enter your email address.

Silver prices will remain rather volatile in our opinion, so do be prepared for the fortunes of AG to oscillate accordingly.

Trading Ideas

When considering an acquisition we try to find silver producers that we believe will prosper and grow based on their own ability, management skills and experience in this tiny sector. Having quality properties in a mining friendly jurisdiction, in this case Mexico is also very important. First Majestic now has a track record stretching back some 10 years which is commendable as there a great many new comers in the silver space who in our humble opinion have yet to prove themselves. A handful of these companies will be successful, but many of them will fall by the wayside so you really do need to do the work in terms of due diligence.

Financials

First Majestic Corporation has a market capitalization of $2.13 billion, a P/E ratio of 23.28, a 52 week trading range of $12.12 to $24.20, an EPS of $0.79, with an average volume of around 800 thousand shares traded per day. First Majestic trades in Toronto under the symbol of FR and on the NYSE under the symbol of AG, for European investors it also trades on the Frankfurt Stock Exchange under the symbol of FMV. First Majestic closed recently on the NYSE at $18.47.

Take care.

We wish you all a successful and profitable year ahead.

Bob Kirtley

URL: www.skoptionstrading.com

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