The shares of silver and gold miner First Majestic Silver Corp (NYSE:AG) fell 11% in 2017. The year actually started off on a strong note, with a roughly 40% share-price gain through early February. But that's when things started to go wrong, with the shares giving up all of that gain (and a little more) in about a month. After a brief recovery, the stock trickled lower through the rest of the year. Although there was one big development that drove performance, First Majestic faced several headwinds last year.
The big news for First Majestic in 2017 was a 42-day work stoppage at the company's La Encantada mine. This is the miner's largest mine based on reserves and was the third-largest based on silver equivalent production in 2016. However, with production stopped, the mine didn't perform as well as it had in the past. Although the work stoppage was resolved during the year, the impact was clear: Through the first three quarters, silver equivalent production at First Majestic was down 15%.
But that wasn't the only mine that lagged year over year production-wise. The company's La Guitarra mine witnessed quarter-over-quarter declines through the first nine months of 2017. First Majestic expects production at this mine to fall by roughly a third in 2017. The miner's production issues at several of its mines contributed to downward pressure on its shares.
There were also cost issues. Through the first nine months of the year, the company's all-in sustaining costs increased 40%. Some of that jump is related to investments the company is making in new projects, with the company executing its "largest drill program ever" in 2017. However, lower production and rising prices aren't the types of trends investors like to see.
Now add in the fact that First Majestic's realized silver price was basically flat through the first nine months of 2017. You can see that there really wasn't much good news to drive the stock higher, and plenty to drive it lower. A silver rally in December helped boost the shares a little bit as silver ended the year up in the mid-single digits. But that wasn't enough to offset the negatives at First Majestic, and the stock gave back most of its December gains in the last days of the year on an analyst downgrade, ending 2017 with an 11% drop.
2017 was a tough year for First Majestic. A combination of factors led to relatively bad business results compared to 2016. That said, management expects the investments made in 2017 to help drive a notable increase in silver production over the next two to four years. And La Encantada mine is practically back at full production levels now that the strike is over, which will be a net production benefit in 2018. Assuming there are no strikes in 2018 and silver prices don't crash, 2017 could end up being a transition year for the miner.
Investors with a positive outlook for silver might want to do a deep dive at First Majestic, despite the weak 2017 share-price showing.