Shares of First Majestic Silver Corp. (AG, Financial) gained 1.41% to close at $7.91 on Monday after the company released production results for the second quarter and first six months of 2019.
The Vancouver-based miner reported strong production growth at its San Dimas and Santa Elena mines in Mexico during the quarter, making up nearly 80% of the company’s total output of 6,410,483 ounces of silver equivalent. Total production was 25% higher year over year and increased 2% from the previous quarter.
In addition to the San Dimas and Santa Elena assets, First Majestic derived its total second-quarter production from the La Encantada, San Martin, La Parrilla and Del Toro mines in Mexico. From its silver and gold assets, First Majestic Silver produced 3.2 million ounces of silver, which was a 16% increase year over year, and 33,576 ounces of gold, reflecting 32% growth.
The company also developed 2.45 million pounds of lead at the La Parrilla and Del Toro assets and yielded nearly 1.4 million pounds of zinc at the Del Toro mine.
Total production of silver equivalent was12.7 million ounces for the first six months of the year, up from 9 million ounces in the prior-year period.Â
The company is on track to meet its 2019 production guidance of 24.7 million to 27.5 million ounces of silver equivalent.
Improved metal recovery rates and lower fuel costs following the installation of a high-intensity grinding mill at Santa Elena and higher grades of material processed at San Dimas mine will help the company reach the output goal.
The long-term catalyst is represented by the commencement of initial production from the Ermitaño silver and gold deposit, which is expected to occur in the final quarter of 2020. The mine hosts high-grade resources and is located near the Santa Elena mill. The satellite gold and silver deposit is expected to considerably prolong Santa Elena's mine life.
The metal must, of course, be supportive in the coming quarters. Gold is uptrending as it is trading nearly 10% higher since the beginning of the year at $1,412.40 per troy ounce at close on Monday. Fears about the trade war between U.S. and China and a likely cut in interest rates by the Federal Reserve before the end of 2019 will be positive factors for gold.
Concerning silver, fundamentals are slowly improving. In fact, economic growth in China, which is the world’s largest consumer of the precious metal, is showing some signs of recovery. Although Chinese economic growth is still the weakest over the last 27 years, the country's gross domestic product increased 6.2% year over year in the second quarter. Therefore, the silver price, which is down 1.5% year to date at $15.32, should improve in the coming quarters.
For these reasons, First Majestic Silver represents an interesting opportunity to benefit from rising gold and silver prices, but not at current market valuations. Following the 17% increase in the share price over the past year to close at $7.9 on Monday, the stock is trading far above the 200-, 100- and 50-day simple moving average lines.
The closing price on Monday was also 72% above the 52-week low of $4.59 and just 4.4% below the 52-week high of $8.25. The price-book ratio of 2.41 is above the industry median of 1.43.
Thus, I would buy shares of First Majestic Silver after a decline in price.
Wall Street expects First Majestic Silver to outperform within 12 months as analysts have issued an overweight recommendation rating. The average target price of $7.62 is below Monday’s closing price.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- Johnson & Johnson Jumps on Earnings Beat
- 3 Large-Cap Companies With High Earnings Yields
- 3 Stocks With High Forward Dividend Yields
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
