First Majestic Silver (NYSE: AG) is off to a strong start to 2019, with shares of the Canadian silver mining company gaining 10.4% in February alone, according to data from S&P Global Market Intelligence. So what's fueling the recovery in the stock that ended 2018 with a double-digit percentage loss? In short, First Majestic's silver production is taking off, and cash flows should soon follow suit.
The big move in First Majestic shares came in the latter half of February. The first trigger was silver prices, which rose sharply on Feb. 20 to hit highs not seen in nearly eight months. For a company that mines and sells silver, higher silver prices are a major revenue booster. Fortunately for investors, First Majestic also announced strong numbers for fiscal 2018 on Feb. 25, helping the stock maintain momentum through the month.
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First Majestic's silver equivalent ounce (SEO) production surged 37% to a record 22.2 million in 2018, causing revenue to climb 19% to $300.9 million even as silver prices hit multi-year lows during the year. Now here's what investors need to know: Of the 22.2 million SEOs, nearly 36% came from the high-potential San Dimas mine that First Majestic bagged with its acquisition of Primero Mining in mid-2018.
First Majestic still incurred a net loss of $204.2 million in fiscal 2018 as it wrote down impairments worth nearly $199.7 million on three mines -- La Parrilla, Del Toro, and La Guitarra -- primarily because of a decline in reserves and resources as silver prices continued to slip. The three mines combined accounted for nearly 19% of the miner's total revenue last year.
The market, however, seems unfazed by First Majestic's bleeding bottom line, and rightly so.
San Dimas now holds the key to First Majestic's growth. In mid-January, management outlined its outlook for 2019, giving investors strong reasons to remain hopeful. It foresees another record production year, with estimated SEOs of 24.5 million to 27.5 million.
Moreover, management also expects costs to decline for a couple of reasons, including a higher share of San Dimas in First Majestic's total production and the start-up of a new roaster at its La Encantada mine. It's worth noting that San Dimas is First Majestic's lowest-cost mine, with its all-in-sustaining cost expected to be only around $7.58 to $9.27 per ounce of silver in 2019.
First Majestic's 2018 production numbers and outlook for 2019 prove that San Dimas is a game-changer for the miner, and that's enough to keep investors excited about the stock.
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