The Low-Cost King of Silver
Once the pending acquisition of Silvermex Resources closes, First Majestic Silver (NYS: AG) will become one of my largest equity holdings. I could not be more thrilled by the prospect!
In the eight years since First Majestic purchased its first asset with the La Parilla mine back in 2004, this company has delivered a stunning record of growth execution and distinguished itself as the premier silver mining stock of this entire silver bull market. Over the past five years, the stock has comfortably outperformed even legendary value-generatorsSilver Wheaton (NYS: SLW) and Endeavour Silver (NYS: EXK) .
To its credit, First Majestic also bucked an unfortunate industry trend by handily outperforming the underlying price of silver over the same period. I sat down with the company's senior management team in Toronto earlier this year to discuss the secrets to their success, and I encourage investors to have a look. By tracking the miner's achievements carefully over time, I have grown tremendously bullish on First Majestic's prospects for continuing to generate substantial shareholder value over the long haul. The stock remains a top pick within my Motley Fool CAPS portfolio, and I will now highlight yet another rationale for my staunchly bullish stance.
At a time when the entire mining industry is battling some very acute cost inflation, even First Majestic saw its cash costs increase by 8% to $8.96 in the first quarter (as the La Encantada mine experienced some lower ore grades and mill recoveries). However, a look at the important production cost per ton of ore reveals First Majestic's stunning operational cost-efficiency relative to the competition.
First Majestic expended only $29.24 per ton of ore processed in the first quarter, representing an industry-trend-bucking 3% dip from the prior-year period. That achievement leads the pack by a huge margin, with Silvercorp Metals (NYS: SVM) offering the next-best result I could find (among U.S.-traded silver miners) with a cost of $64.50 per ton of processed ore in its fiscal third quarter. And for all the negativity surrounding Fortuna Silver Mines' (NYS: FSM) elevated costs at the Caylloma mine, it's worth noting that Fortuna's growing San Jose mine struck a comparatively lean operating cost of $70 per ton during the first quarter.
But nowhere in my review of earnings results from silver miners did I encounter anything even approaching First Majestic's low-cost achievement. First Majestic CEO Keith Neumeyer commended his team's performance, noting that the company's 3% cost reduction comes at a time when "many of our peers have experienced cost increases ranging between 25% to 50% per tonne."
First Majestic is busy developing the looming Del Toro mine into the company's largest mining operation, and potential stock catalysts may be imminent as the company releases an updated resource estimate and preliminary economic assessment over the coming weeks. Since this stock will soon become a core holding of mine with the closing of the Silvermex acquisition, I await with excitement the profound value-generation that's bound to result when a top-notch management team brings its proven operational efficiency to bear on yet another high-quality silver asset.
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At the time thisarticle was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of Endeavour Silver, First Majestic Silver, Fortuna Silver Mines, and Silver Wheaton. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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