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To know where you're going, you first have to know where you've been. After witnessing the most impressive production growth spurt in silver thus far in this bull-market cycle, observers of First Majestic Silver (NYSE: AG ) know just where this company has been: on the fast track to success.
First Majestic Silver has already delivered substantial leverage to trailing gains in the price of silver, outperforming even the iconic Silver Wheaton (NYSE: SLW ) over the past five years. First Majestic's stock has glided clear past fellow success stories Endeavour Silver (NYSE: EXK ) and Fortuna Silver Mines (NYSE: FSM ) along the way. Given the laudable achievements behind each of those competing silver success stories, First Majestic Silver's mammoth buildout to date has certainly been one for the record books.
But if you expect to find this company pausing for a moment to rest on its laurels, you're in for a pleasant surprise. To the contrary, the miner is preparing to blast straight through the 10 million-ounce threshold of annual silver-equivalent production on its way to reaching 16 million ounces by 2014. And for those who take a moment to look back over the secrets to First Majestic's trailing achievements, the very same hallmarks of continued success are everywhere to behold.
Accordingly, when I sat down with the company's senior management team during the recent PDAC conference in Toronto, I sought to split our time between a helpful look back to know where they've been and a timely look ahead at the achievements yet to come. The following excerpts from my interview with President &and CEO Keith Neumeyer and COO Ramon Davila represent just one portion of the conversation, and I encourage readers to bookmark my article list or follow me on Twitter to watch for subsequent installments.
Christopher Barker: The execution of your company's growth strategy over recent years has become the sterling standard to which your industry peers now aspire. What were the secrets to that success?
Keith Neumeyer: I think that credit belongs to the entire team, all the way down to the shareholders and the confidence they had to give us the money to execute our business plan. And then Ramon Davila, and his team in Mexico, they have just done a top-notch job. You know, we didn't sit back and spend two years doing feasibility studies. We had confidence in our assets. We had confidence in our technical teams. So we said, "Let's just go for it," and we hit the ground running. We're probably a bit more conservative today, because now we're listed with a $2 billion market cap [currently $1.8 billion], and so some of the moves we make are a little slower. We do often talk about that. Back then, during 2004 through 2007, we were pretty nimble. It was an exciting time.
Ramon Davila: I would like to point out that the faith that Keith had in our Mexican team was very important. The combination of his abilities and our abilities in different fields was key to the growth of our company. Also, we have been very proud to be operating in Mexico only with Mexican personnel. That is a very important part of the success. By constructing the mills ourselves, for example, we are able to reduce the costs in a very substantial way.
Barker: It seems a scary prospect, as you're continuing to evaluate a resource, to go forward with construction of a mine without having banked substantial reserves.
Neumeyer: I remember Florentino [Munoz; exploration director], Ramon [Davila], myself, and David Shaw -- one of our directors -- we were standing at the La Parilla property back in November of 2003. This was before we bought it. We didn't buy it until January 2004. We were walking the property, which was only 300 hectares at the time. Now it's 70,000 hectares. There was an old mill that had been shut down for five years. It was a 180-ton-per-day mill that ran for 30 years or something, but it was basically scrap metal.
So we looked at it, and I asked David: "Well, how much silver is there?" And he said: "There's 100 million ounces," even though there were no [43-101 compliant] resources at the time. So we made the decision right then: "Let's build a mill. If there's 100 million ounces there, who cares if it's 43-101 compliant or not?" So we built the mill, had it running by July , and ever since then we've just been expanding and expanding.
Barker: Will La Parilla ultimately contain more than 100 million ounces? Is it bigger than you initially thought?
Neumeyer: Oh, yeah, for sure!
In less than a year from the time the company decided to build a mill on the site, production began with a modern mill facility that has since seen multiple expansions to reach its current throughput capacity of 2,000 tons per day.
Barker: It seems as though Del Toro is taking that same route. It's a resource that currently looks fairly modest on paper, but judging by the construction plans and your production expectations, it's obvious that you have a very substantial operation in mind there. Is Del Toro still expanding?
Davila: Yes, it is. Del Toro is a very interesting property. I had followed that property for 10 years, since my time with Pan American Silver (Nasdaq: PAAS ) . It presented a difficult situation, because the mining claims were all spread out across many owners, so we had to put out an effort to get the property. But the potential that is there is a very important potential. We keep finding and finding and finding ore. The challenge is to put everything together to put out a report because we don't find the time to cut it down. Between high grade and low grade -- everything -- it's going to be a very interesting property. So we decided finally to go with the first stage of 1,000 tons per day, but the construction of the mill is such that it's ready to grow to 2,000 and then to 4,000 tons per day. So we are working on exploration, and we are working on development, and it's coming out very well.
Barker: What will most surprise observers of your company going forward?
Neumeyer: I think Del Toro will be a positive surprise. I think it's not being truly valued in the company. When we say Del Toro will be our biggest mine, we mean it. It will be our biggest mine. It's not going to happen tomorrow. But it will, over the next three years, become a very large operation. And even the resources that we're going to be publicizing in the next couple of months will be understating the potential of the asset.
When the key ingredients for successful silver mining are combined under one roof, the result is a whole lot of the product pictured above: piles of ready-to-ship silver dore bars.
Combine ingredients and stir well
Revealed within these interview excerpts are, I believe, the ingredients of First Majestic's successful growth to date, as well as the template for continued success going forward. The company holds a veritable fortune in silver assets with substantial expansion potential, but management clearly recognizes that its workforce on the ground in Mexico represents its single greatest treasure. Combining those assets under a management team that has shown itself quite adept at taking the bold but measured moves necessary to chart a peer-stomping growth trajectory, First Majestic offers a remarkable promise of sustained production growth at a highly compelling share valuation. Reflecting the favorable valuation that I perceive here beneath $18 per share, I have identified my bullish CAPScall on the stock as a top pick within my Motley Fool CAPS portfolio, and I invite my fellow Fools to follow suit.