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First Majestic (AG) to Sell Its Royalty Portfolio for $20M

First Majestic Silver Corp. AG announced that it signed a $20-million deal on Nov 25 to sell a portfolio of its eight precious metals royalties to Metalla Royalty & Streaming Ltd.

 

Upon closing the transaction, AG will receive the total consideration of $20 million through 4,168,056 Metalla shares at a presumed price of $4.7984 per share (based on a 25-day volume-weighted average price on the NYSE).

 

Following the share transfer, First Majestic will own 8.5% of the outstanding shares in Metalla. These shares have a statutory hold period of four months and one day (after the closing date) as well as specific contractual resale limitations.

 

Located in Coahuila, Mexico, the producing mine La Encantada is completely owned by First Majestic. It is one of the largest producing silver mines of AG with 3.2 Moz of silver and 460 ounces of gold production in 2021. Once the deal is closed, Metalla will get 100% gross value royalty (limited to 1,000 ounces annually) on the gold produced at the La Encantada mine.

 

The three Mexican advanced silver royalties, namely Plomosas, La Joya and La Luz , are located in Sinaloa, Durango, and San Luis Potosi, respectively. Plomosas is a permitted project, owned and operated by GR Silver, whereas La Joya is currently owned by Silver Dollar. La Luz project is fully owned by First Majestic.

 

Plomosas is subject to a 1% buyback for $1 million. First Majestic agreed to give 2% NSR of each of these assets to Metalla upon completion of the deal.

 

Located in Zacatecas, Mexico State, Jalisco and Durango, respectively, the four development silver royalties are Del Toro, La Guitarra, San Martin and La Parrilla. All these royalties are owned and operated by First Majesticexcept La Guitarra, which is subject to a binding purchase agreement with ‎Sierra Madre. Metalla will hold a 2% NSR of all these royalties.

 

The deal is expected to close in the first quarter of 2023, subject to customary closing conditions.

 

In the third quarter of 2022, First Majestic reported a loss of 9 cents per share, missing the consensus mark of a loss of 3 cents due to lower metal prices. AG reported a loss per share of 7 cents for the third quarter of 2021. Revenues for the quarter were $160 million, up 28% from the prior-year comparable quarter’s level. Higher production at San Dimas and Santa Elena, partially offset by a decrease in the average price per silver equivalent ounce sold, drove revenues.

 

AG’s operating profit declined year over year due to higher costs of sales and lower metal prices. First Majestic’s profit also suffered setbacks due to depreciation and depletion from San Dimas, Santa Elena and La Encantada.

 

The Zacks Consensus Estimate for AG’s bottom line is currently pegged at a loss of 21 cents for the current year. First Majestic had delivered earnings per share of 2 cents a year ago. The same for revenues stands at $640 million, suggesting a 9.6% increase from the year-ago reported figure.

 

Price Performance

Shares of First Majestic have fallen 28.8% in the past year compared with the industry’s decline of 23.1%.

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Zacks Rank & Stocks to Consider

First Majestic currently carries a Zacks Rank #4 (Sell).

 

Some better-ranked stocks in the basic materials space are CalMaine Foods CALM, Innospec IOSP and Sociedad Quimica y Minera de Chile S.A. SQM. While CALM and SQM flaunt a Zacks Rank #1 (Strong Buy), IOSP carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

CalMaine Foods has an expected earnings growth rate of 197.8% for the current year. The earnings estimate for 2022 is pegged at $8.10 per share. CALM’s earnings estimates have been constant in the past 30 days. The stock has gained 56% during the year.

 

Innospec has a projected current-year earnings growth rate of 30.4% from the prior-year reported level. Earnings for the current year are estimated to be $6.26. IOSP has a trailing four-quarter earnings surprise of 25.6%, on average. Shares of IOSP have jumped 30.8% in a year.

 

The Zacks Consensus Estimate for Sociedad’s 2022 earnings per share is pegged at 520% growth from the year-ago reading. The estimates have moved 7.3% north in the past 30 days. SQM has a trailing four-quarter earnings surprise of 37.4%, on average. Its shares have surged 42.1% in the past year.

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