First Majestic Silver Corp. (AG, Financial) tumbled 15.3% to $5.49 on the New York Stock Exchange at the end of regular trading on Aug. 13 following the release of financial results for the second quarter of fiscal 2018.
The immediate impact the San Dimas mine in Mexico made in terms of mine operating earnings of $5.1 million and additional production of silver and gold was not enough for First Majestic Silver to avoid an adjusted earnings loss of 7 cents per share. The mine was acquired by the company in May. San Dimas is now the company's largest producing mineral asset in Mexico.
An all-in sustaining cost of $5.41 per ounce of gold sold at San Dimas – the lowest cost of the quarter – didn’t help lift the bottom line of the quarterly statement. The improvement in the grade of silver ore processed at the La Encantada and Del Toro mines in Mexico also didn’t help.
Revenue for the quarter, however, came in at $79.7 million, a nearly 37% increase year over year.
Consequently, the stock is now trading below the 200, 100 and 50-day simple moving average lines. The current share price also represents an 18.2% discount to the midpoint of the 52-week range of $4.93 to $8.48 per share. The stock of First Majestic Silver – one of the most important contributors to the silver supply - is cheap.
On Wall Street, the stock of First Majestic Silver holds a recommendation rating of 2.3 out of 5. The average target price of $9.54 per share is a 74% upside from the current market value.
The catalysts to watch are an increase in the operating margin and a significant drop in the all-in sustaining cost per ounce of gold. The miner guides the AISC will be $13.28 to $14.84 per ounce. To accomplish both targets, the following factors will be supportive: an improvement in production rates at La Encantada mine, improvements in the production of silver and gold at San Dimas and in the average grade of silver ore to process at La Encantada and Del Toro mines.
At La Guitarra in Mexico, the asset will be on care and maintenance for some time.
The company's producing assets are all in Mexico. The others are the Santa Elena gold and silver mine, the La Parrilla silver mine and the San Martin silver mine.
Even though it is 56% lower than in the previous quarter, $109.2 million in cash on hand and equivalents should provide First Majestic Silver with sufficient financial resources to accomplish its goals. The gold margin was affected by an increase in general and administrative expenses and sustaining capital expenditures, the integration of the San Dimas mine into the company's portfolio and by a decrease in production at the La Encantada and Del Toro mines.
During the quarter, the company withdrew funds from the available liquidity to deleverage the balance sheet.
The company said July production reached a new monthly record with a silver equivalent output of 2.2 million ounces.
Disclosure: I have no positions in First Majestic Silver Corp.
