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First Majestic Silver Corp Rises on Production Results

- By Alberto Abaterusso

First Majestic Silver Corp. (AG) jumped 2.27% to $6.30 at close on Oct.15, following the release of production results for the third quarter of fiscal 2018.

Thanks to a complete trimester of production from the San Dimas silver mine in Mexico and significant grade improvements across five out of a total of six mines operated, First Majestic Silver Corp. reported a record third-quarter equivalent silver production of 6.7 million ounces, reflecting 31% growth from the prior-year quarter. The total production of silver equivalent resulted from 35,260 ounces of produced gold and 3,505,344 ounces of produced silver. Production of the yellow metal increased 129%, and production of the grey metal increased 45% year-over-year.

First Majestic Silver Corp. also produces lead and zinc. However, the base metals account for only 7-8% of the company's total revenue. Therefore, most of its business is made in the production of silver and gold from mineral deposits located in Mexico. Besides the San Dimas silver mine, it operates the Santa Elena silver and gold mine, the La Encantada silver deposit, the San Martin silver mine, the La Parrilla silver mine, the La Guitarra silver mine and the Del Toro silver deposit. The Vancouver-based company is also engaged in exploration activities and development of its mineral deposits in Mexico.

After Monday's jump, the share price is just a whisper away from the 200- and 100-day simple moving average lines though nearly 11% off the 50-SMA line. The share price at close Oct. 15 was about 6.5% below the middle of the 52-week range of $4.93 to $8.48. The market capitalization is about $1.2 billion.

The 14-day Relative Strength Index is 64.82, within a historical range of 30 to 70. The price-book ratio is 1.62 versus an industry median of 1.74, and the EV-Ebitda ratio is -19.61 compared to an industry median of 9.3.

The indicators are suggesting that First Majestic Silver Corp. is not trading cheaply and that a downtrend in the share price may happen soon.

There are some catalysts, including higher metal recovery rates and lower operating costs following the installation of a new technology at grinding and in the flotation circuit at Santa Elena, San Dimas, La Parrilla and Del Toro mines. But First Majestic Silver Corp. will not benefit before the second part of 2019. Furthermore, the 20% cost reduction program will not start affecting results before the second quarter of 2019.

Therefore, it would not make sense to add to First Majestic Silver Corp. at least until the catalysts occur, unless silver suddenly emerges from its weakness, supporting buying. Silver is the primary source of income for the miner.

The company plans to release its financial results for the third quarter of 2018 on Nov. 6.

As of Oct. 16, the average analyst has predicted a loss of 3 cents per share for the third quarter of 2018, lower than net earnings reported a year ago. The seven estimates range between a loss of 5 cents and a profit of one cent.

The recommendation rating is 2.3 out of 5. The average target price is $9.54 per share, reflecting 51.4% upside from the share price at close Oct. 15.

First Majestic Silver Corp. does not distribute dividends to its shareholders. For the 52 weeks through Oct. 15, the share price has declined 10% but has outperformed the VanEck Vectors Gold Miners ETF (GDX) by 4%.

GuruFocus has assigned a financial strength rating of 5 out of 10 and a profitability & growth rating of 4 out of 10.

Disclosure: I have no positions in any security mentioned in this article.

This article first appeared on GuruFocus.