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Start Adding First Majestic Silver Corp

- By Alberto Abaterusso

First Majestic Silver Corp. (AG) has collapsed 5.74% on the New York Stock Exchange to a share price of $5.09 on Monday, for a market capitalization of approximately $982.6 million. For the 52 weeks through Nov. 12, the share price has fallen 21% and is now trading substantially below the 50-, 100- and 200-day simple moving average lines.

First Majestic Silver Corp. is trading cheaply. This is also indicated by a price-book ratio of 1.31 versus an industry median of 1.74. The share price at close Monday is just 3.2% off the 52-week low of $4.93 and 67% from the 52-week high of $8.48.

In addition, a 14-day Relative Strength Indicator of 31.66 within a historical range of 30 to 70 is suggesting that First Majestic Silver Corp. is near to oversold levels. Therefore, the odds of further significant weaknesses in the share price are extremely low.

If you buy the stock at the market value of Nov. 12, you may experience a more than 85% appreciation, since analysts are predicting that the share price will reach $9.54 within the next 52 weeks.

The catalysts that can determine such an increase - commodity prices permitting of course - will not be seen before the second part of 2019. Investors, therefore, may want to consider starting to add to their positions in First Majestic Silver Corp, taking advantage of the cheap valuation it has now.

These catalysts consist of higher metal recovery rates and lower operating costs following the installation of a more advanced technology for the processing of minerals at Santa Elena, San Dimas, La Parrilla and Del Toro mines in Mexico.

Besides these assets, First Majestic is also deriving silver from the La Encantada mine and the San Martin mine in Mexico.

First Majestic Silver is projecting silver production of 12 million to 13.2 million ounces, or a silver-equivalent production of 20.5 million to 22.6 million ounces, in 2018 as it also produces gold from its metallic deposits. This means that the production of equivalent silver for the last three months of 2018 should be around 4.47 million to 6.84 million ounces since the company closed the third quarter with another record silver output of 6.74 million ounces. That resulted in an 11% growth in total revenues of $88.5 million and 45% boost in the operating cash flow of $20.7 from the previous quarter.

The company has been capable of reaching those levels of total sales and operating cash flows even as the average quarterly silver price of $14.66 per ounce was one of the lowest in the last nine years.

The cash costs and all-in sustain costs are declining as a result of higher throughput, and this has already enabled First Majestic Silver Corp to reduce its adjusted loss to 3 cents per share from the adjusted loss of 7 cents for the previous quarter.

Cost-cutting efforts, higher production -- especially from the San Dimas mine -- and improved economies of scale will translate into a further improvement in the bottom line of the income statement. A turnaround is likely to occur between the last trimester of 2018 and the first trimester of 2019.

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

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This article first appeared on GuruFocus.