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First Majestic Silver's Earnings Mark an Incredible Entry Point

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Some folks, somewhere, clearly opted to sell some shares of First Majestic Silver (NYSE: AG  ) Tuesday morning. After the fast-growing silver miner released fourth-quarter and year-end 2012 earnings, the stock dipped by nearly 5% early in the session.

I don't know who they are, so I can't ask them what they were thinking. But let me try anyway (just in case): "Hey, all you traders out there who sold shares of First Majestic Silver Tuesday morning... What in the world were you thinking?"

Of all the bizarre and inexplicable price actions I've witnessed over the years within the highly volatile world of precious-metal miners, this egregious follow-on selling pressure heaped upon the shares of First Majestic Silver Tuesday morning takes at least a slice of the proverbial cake. But, if their short-sighted flight yields a more attractive entry point for long-term-minded Fools, then I welcome the market's occasional gift of a truly irrational share valuation.

First Majestic grew production by 20% in 2012 to yield 9.1 million silver-equivalent ounces, and defended its consolidated cost structure very effectively with speedy improvements to its recently acquired La Guitarra mine. In fact, the company performed an extraordinary feat by keeping its per-tonne costs even with the prior-year -- despite dramatic industrywide cost pressures -- at a peer-leading level of $28.50 per tonne!

While absorbing a 12% decline in the average realized price for silver, this top-notch mine operator managed to sustain exceptional bottom-line profitability with a net profit margin of 36% for the year! Let me convey this another way: First Majestic Silver and Pan American Silver (NASDAQ: PAAS  ) recorded nearly identical 2012 net income ($88.9 million and $87.5 million, respectively), yet Pan American required 3.75 times as much revenue to achieve that result. Silver Wheaton (NYSE: SLW  ) will always remain the most profitable name in silver on the basis of net profit margin, but where the miners are concerned, First Majestic enjoys a phenomenal track record of ensuring that major growth initiatives translate efficiently to the shareholder's bottom line. Plenty of now-ousted gold mining CEOs might have done well to learn a thing or two from the silver-studded dream team of First Majestic CEO Keith Neumeyer and COO Ramón Dávila.

With the newly completed Del Toro mine now embarking upon the silver industry's most exciting mine ramp-up -- and expansion projects nearing completion at both La Guitarra and San Martin -- First Majestic expects to deliver astonishing production growth of 35%-43% during 2013 alone (with further expansion to come during 2014!). I visited several of the company's operations for myself late last year, and observed firsthand just how beautifully positioned this company is to become the next household name among the senior miners of silver. Endeavour Silver (NYSE: EXK  ) and Alexco Resource (NYSEMKT: AXU  ) likewise top my current list of the clearest bargains in silver with the lowest downside risk, and First Majestic Silver makes that a powerful silver mining trio to consider amid the rubble of a dramatic sell-off for the industry at large.

To track my ongoing coverage of First Majestic Silver and the entire silver mining industry, please bookmark my article list or follow me on Twitter. My Foolish colleague Dan Caplinger, meanwhile, has prepared a detailed report outlining the compelling investment thesis for Silver Wheaton, and I encourage Fools to access that special report today by clicking here.

Read/Post Comments (3) | Recommend This Article (19)

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  • Report this Comment On February 27, 2013, at 6:25 AM, prginww wrote:

    Sinchi wrote:

    "Hey, all you traders out there who sold shares of First Majestic Silver Tuesday morning... What in the world were you thinking?"

    Especially in the context of:

    Bernanke testimony boosts Britain's FTSE

    By Alistair Smout

    LONDON, Feb 27 (Reuters) - Britain's top share index rose in early trade on Wednesday, rebounding from steep losses in the last session after the U.S. Federal Reserve's chairman defended stimulus programmes for the world's biggest economy.

    Ben Bernanke strongly defended the U.S. central bank's monetary stimulus before Congress on Tuesday, easing worries about a possible early retreat by the Fed from bond purchases and helping U.S. stocks gain after market close in Europe.


    Official Web Link Assistant to Sinchi

    Long P. Ms.

  • Report this Comment On February 27, 2013, at 11:04 AM, prginww wrote:

    One of these days the shares of mining companies are going to go up, right? This has been a vicious downturn...I've tried to use this as an opportunity and bought some Endeavour, but these stocks aren't even showing strength when their underlying metals prices are jumping...

    Also, any update on Huldra? Seems like this company went from a near producer to a company with no news other than a PP. And their share price has lost something like 60% since speedy named it his top silver pick for 2013. I've been digging trying to figure out what is going on there.

  • Report this Comment On March 02, 2013, at 6:39 AM, prginww wrote:


    Rye Patch Announces Results From the 2012 Patty Exploration Program

    VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 1, 2013) - Rye Patch Gold Corp. (TSX VENTURE:RPM)(RPMGF)(5TN.F) (the "Company" or "Rye Patch") is please to announce the results of its fall 2012 drilling and exploration program on the Patty project located in Eureka County, Nevada.


    • At Patty, drilling cut several zones including RP-004 which returned 1.95 g/t gold over 4.6 metres, and RP-003A which returned 0.58 g/t gold over 9.1 metres which expands the Patty deposit northward;

    • Geologic and structural mapping along with surface rock-chip sampling show the Indian Creek target is a major structural corridor with up to 9.42 g/t gold at the surface coupled with significant Carlin-type pathfinder elements;

    • Western Rift, West Geyser and South Pediment remain high priority exploration targets with tremendous upside potential; and

    • Two stratigraphic drillholes and drillhole re-logging confirm the presence of highly prospective host rocks and structural zones.

    The Patty Project is a joint venture among Barrick Gold US (ABX.TO), McEwen Mining (MUX.TO), Chapleau Resources (Magellan Minerals Ltd. (TSX VENTURE:MNM)), and Rye Patch Gold US Inc. The project consists of 616 unpatented lode mining claims covering roughly 53.1 square kilometres (13,120 acres) and is located immediately south of Rye Patch Gold US Inc.'s 100% controlled Garden Gate Pass project; 10 kilometres south-southeast of Barrick's recently announced Goldrush discovery; and east and adjacent to McEwen Mining's Tonkin Springs project along the western margin of the Northern Nevada Rift (NNR). Geologically, the project straddles the same geologic environment as Barrick's new gold discovery at Goldrush. Rye Patch Gold US Inc. is earning 60% interest in the Patty project by completing $5 million in exploration expense over a 5-year period. Under the agreement, Rye Patch Gold US Inc. was required to drill 3,300 metres (10,800 feet) in 2012 (completed), and a minimum of 1,525 metres (5,000 feet) every year thereafter. To date, Rye Patch has completed approximately $1.5 million of the required $5 million in exploration expenditures.


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Related Tickers

8/26/2016 4:01 PM
AG $13.19 Down -0.30 -2.22%
First Majestic Sil… CAPS Rating: ***
AXU $1.87 Up +0.02 +1.08%
Alexco Resource CAPS Rating: **
EXK $4.71 Up +0.01 +0.21%
Endeavour Silver CAPS Rating: **
PAAS $17.97 Down -0.12 -0.66%
Pan American Silve… CAPS Rating: ***
SLW $26.56 Down -0.14 -0.52%
Silver Wheaton CAPS Rating: ****