Thursday, February 16, 2012

First Majestic Silver (AG): Time to Invest?

Of the silver miners out there, the stock with the most significant leverage to silver is First Majestic Silver (NYSE:AG), with a leverage of 95 to 96 percent of its revenue to the direct price of silver.

That's not to say there aren't by-product to silver, as other products mined include diamonds, gold, lead, iron ore and zinc. The inclusion of these of course help to stabilize the performance of First Majestic by offering more price continuity to balance the more volatile silver prices.

First Majestic continues to be weighed down some by the news from its La Encantada mine, where in the third quarter of 2011, high manganese was run into, slowing down silver exploration, which caused production estimates to fall short, whereby an expected sell off followed.

Even so, 2011 was a good year for the company, as ended at 7,562,493 equivalent ounces of silver, up 8 percent from the 7,024,056 equivalent ounces of silver produced in 2010.

Lead production for 2011 jumped significantly, climbing to 7,888,943 pounds, an increase of 23 percent. Gold production was at 1,537 ounces, down 29 percent from 2010.

Keith Neumeyer, President and CEO, said this in an interview concerning 2011, "The year, 2011 marks the eighth year in a row that First Majestic has achieved record production of silver. Not only is this a great achievement, but our growth is not slowing down. There appears to be no end in sight of our growth in silver production. As the fastest growing and purest silver producer in the world, management's focus and top priority remains to continually deliver shareholder value."

Guidance for 2012 has silver production at First Majestic projected to reach 8.9 to 9.4 million silver equivalent ounces, or 8.3 to 8.7 million ounces of pure silver. Looking further out, projections are for production to reach 16 million silver equivalent ounces for 2014.

Drivers for 2012 include the opening of the Del Toro mine, expansion at La AParrilla, and improvements scheduled at La Encantada. A total of $20 million in capex has been set aside for these projects.

By 2014, Del Toro should be the largest operation of First Majestic Silver, producting an estimated 6 million ounces of silver annually.

The point is First Majestic is positioned for aggressive growth over the next several years,

As to management, it has one of the top teams in the industry, with virtually no attrition at the top levels once a person is placed. That's rare in the industry, and a definite competitive advantage and differentiator.

After the shares took a hit in early October of 2011, they have steadily fought back to where it is today. The good news is it's still way off its highs, and it may be wise if you're considering starting a position in silver or expanding it, to give First Majestic a serious look before it begins to run up, which it is on its way to doing.

First Majestic closed Wednesday at $19.26, gaining $0.17, or 0.89 percent. After hours it fell to $18.91, down $0.35, or 1.82 percent.

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