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« The Team In Travel Mode | Main | The London Silver Investment Summit »
Thursday
Nov082007

First Majestic Silver Corp: First Class

On Tuesday we attended the Silver Investment Summit in London and had the pleasure of talking to many of the management teams of various silver companies including Keith Neumeyer, the President and CEO of First Majestic Silver Corp.

First Majestic Silver Corp

First Majestic Silver Corp is an emerging silver exploration and mining company with three producing silver mines in Mexico. Mexico is the second largest silver producing country in the world, second only to Peru. In our opinion it is one of the best places to be mining/exploring for precious metals. Mexico has a rich history of mining, in particular silver mining and a mining friendly, politically stable government.

When we invest in a silver company, we like to make sure that they actually have some silver, not simply a few good drill results or land claims in historic silver mining districts. First Majestic Silver has 128.3 million ounces of silver and this resource is certified to NI 43-101 standards so they have a considerable resource base on which to build a company. Not only does First Majestic have a decent amount of silver in the ground, but they are also a silver producer and so are in a position to benefit directly from rises in the silver price, which we believe will continue taking silver to $20/ounce soon and possible to $100 over the next few years.

First Majestic is also looking to expand their number of ounces in the ground and step up their production. Indeed, the company announced on October 23rd that they had enjoyed another record quarter of silver production. Production in the third quarter ending September 30th, 2007 increased to a record 942,656 equivalent ounces of silver. This is an 11% increase over the previous quarter and a massive increase of 113% over the same quarter the previous year. First Majestic is also aiming to expand their silver resource to 300 million NI 43-101 ounces by the end of 2008. By combining an expanded resource base with increased production, First Majestic is a great position to benefit from higher silver prices which should be reflected in their stock price over the next few years.

First Majestic Silver Corp Project Map

Management is one of the most important part of a company, a good company is nothing without good people. We had a good chat with the President and CEO of First Majestic, Keith Neumeyer, who is in our opinion a first rate guy who is doing an excellent job of running the company. Experience is no doubt essential in this and indeed any business. However we often see companies advertising “Combined Management Experience of over 250 years”, but this is not as important as what the management has achieved. It doesn't matter how long you have been in the industry, its what you have archived in the sector that really counts. Keith Neumeyer, who brings with him a proven track record having been a founding President of First Quantum, a company which now has a market capitalisation of around $6 billion. Similarly, the COO Ramon Davila has been a past President of Plata Panamerican SA de CV, which is subsidiary of Pan American Silver and the Chairman Rober MacCallum used to be President of Kensington Resources, prior to their merger with Shore Gold Inc. Keith Neumeyer also stressed the importance of financials in his company which we fully agree with. At the end of the day, it is all about money. You can have the best drill results in the world, but if you cannot put an operation together to mine the metal for a profit, then the geology is not worth much.

First Majestic Silver

We think that First Majestic is in a great position to take advantage and profit from this silver bull market, which is far from over. Silver is being driven higher by a number of factors, but most importantly its the good old fashioned case of supply and demand that is sending silver prices higher. To illustrate the supply squeeze in the silver market, we would like to share with you a story that Keith Neumeyer told us when we spoke to him at the Silver Investment Summit. In April 2006 CIBC, which is one of the largest banks in Canada, received an order for $50 million worth of physical silver bullion. The bank filled the order and then went out to buy the bullion. However, getting your hands on physical silver is not that easy anymore and it took the bank until August the same year to fill the order. They eventually got the silver by purchasing pre-World War Two bars from a private investor in Switzerland. A month later the bank started publishing a monthly silver report and became bullish on the silver price, after realising the realities of supply and demand in the silver market.

So why is First Majestic in a good position to benefit from rising silver prices? The reason is that First Majestic gets 90% of its corporate income directly from silver and is therefore leveraged to the silver price, which is exactly what we look for in a silver stock. The majority of mining companies find silver with other metals, and so sell off the other metals as “credits”. For example, although Agnico Eagle is a gold mining company, at their LaRonde mine Quebec, the credits from other metals in the mine such as copper actually generate more cash than the gold itself, meaning they have negative cash costs per ounce of gold mined. However we like the fact that First Majestic is 90% exposed to silver compared with Pan American Silver which has around 50% and Hecla Mining which is about 30%. This means that as silver prices rise, First Majestic should rise as well, but outperform the bullion on a percentage basis.

In the past First Majestic has done just this. The comparison chart below shows First Majestic against the silver price in 2006.

First Majestic Silver Corp: First Class 1

As you can see, First Majestic moved up and down with the silver price, but offered much more leverage to both rising and falling silver prices. We are of the opinion that silver prices are set to move much, much higher so owning shares in First Majestic appears to be an attractive way to profit from rising silver prices in the future.

Although over the past year the stock performance has not been very exciting, neither have silver prices and so this stock should begin to make good gains again now the silver is on the move.

First Majestic Silver Corp 1yr Chart

This recent run up in silver prices has helped First Majestic's stock price, which now appears to be back on track and moving to higher ground again.

First Majestic Silver Corp Recent Perf Chart

A stock price that is leveraged to the silver price is ones of the qualities we look for in a silver stock. Looking back at the stocks past performance in the earlier stages of the silver bull market we can see that that stock is moving considerably higher as silver prices head further north.

First Majestic Silver Corp 3yr Chart


This stock is not for the faint hearted, the price is very volatile and highly exposed to the oscillations in the silver price. One must be prepared to hold this stock with a long term outlook and be prepared for severe swings in the stock price. However with a market cap of C$291 million, First Majestic is not the smallest player in the park, but the stock is nimble enough to make significant gains, and offers a decent amount of volume so one can get enter and exit out of positions without a problem.

In conclusion, we like First Majestic's projects, past performance, leverage to the silver price and most importantly management team, which combined should prove to be a good investment vehicle to profit from rising silver prices. We intend to make an investment, but not yet as we think silver and gold are due a correction/consolidation and this drop will probably take the stock price down with it. This should provide us with an buying opportunity which we will signal to our subscribers of The FREE Silver Prices Newsletter as soon at it appears. To sign up for the newsletter completely free of charge, just click here and enter your email address.

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Reader Comments (4)

How are you able to publish this newletter for free? What is your revenue source? Do the companies that you analyze pay you fees?

November 9, 2007 | Unregistered CommenterEve Northrup

In India Diwali festival is over and I think now in coming weak we could face a correction in silver prices. I think that would be a best chance to get into the bull train again.

November 10, 2007 | Unregistered Commenterdalip puri

Eve,

We do not take fees or any other financial inducements from companies, we are totally independent.

We represent a small group of investors who are mainly family, friends and work related colleagues. So it’s our money that goes on the line with every trade that we make.

This web site disciplines us into writing down just why we are making an investment, otherwise we fall into the trap of thinking that we do not have to do the Due Diligence.

Another benefit is the feedback that we get from our readers, which is very helpful.

Hope this puts your mind at rest.

November 10, 2007 | Unregistered CommenterSilver Prices

Dalip,

Its a good point that you make, we will see what next week brings.

November 10, 2007 | Unregistered CommenterSilver Prices

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