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Here's Why First Majestic Silver Corp. Fell by Double Digits Today

Maxx Chatsko, The Motley Fool

What happened

Shares of First Majestic Silver (NYSE: AG) sank by double digits on Monday after the silver miner announced second-quarter and first-half 2018 earnings results. Although the company churned out record silver equivalent production and reported a 27% increase in revenue from the first quarter, high operating costs continue to sabotage progress. As a result, the business reported an operating loss in the second quarter of 2018. 

Making matters worse, the company took an impairment charge related to its La Guitarra mine, which pushed the net loss per share to $0.22 during the quarter. Adjusting the bottom line resulted in a net loss per share of $0.07, but that was still much worse than analysts had expected.

As of 12:06 p.m. EDT, the stock had settled to a 14.7% loss.

A declining chart drawn on a chalkboard.

Image source: Getty Images.

So what

During the second quarter of 2018, First Majestic Silver produced 5.1 million silver equivalent ounces -- a quarterly record and a massive 32% increase from the previous quarter. However, the company realized all-in sustaining costs (AISC) of $16.43 per payable silver ounce, which didn't leave much breathing room considering the average realized selling price was just $16.74 per ounce.

An AISC that high simply isn't sustainable. Consider that in 2017 the business achieved AISC of $13.82 per payable silver ounce -- and even that's on the high end for the industry. The company is optimistic that its latest acquisition will help lower production costs, but Wall Street is beginning to realize there's a lot of ground to make up.

Now what

Management is confident operations will improve in the near future, guiding for second-half 2018 AISC in the range of $13.28 to $14.84 per payable silver ounce. If selling prices for the precious metal remain near current levels, that level of operating efficiency might be enough to help the business turn profitable. However, investors will still be faced with the reality that First Majestic Silver is a high-cost miner relative to its peers. For that reason, it may be best to stay away from the stock until the company can consistently lower production costs.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.