What happened
Shares of First Majestic Silver Corp. (AG), a silver miner based in Canada, jumped 13% through the first half of 2018, according to data from S&P Global Market Intelligence. Although the stock's 10% drop through January represented an inauspicious start to the year, shares rebounded handily, rising more than 26% in the five months afterwards.
In addition to a strong 2017 earnings report, shareholders reacted positively to a demonstration of management's commitment to shareholders and the completion of the company's acquisition of Primero.
Image source: Getty Images.
So what
After a cursory glance at First Majestic's 2017 earnings report, investors may have been frustrated, considering the company experienced a 9% revenue decrease from 2016. Dig a little deeper, though, and it becomes apparent why they, instead, took kindly to the report.
For one, the company reported annual production of 16.2 million silver equivalent ounces, achieving its 2017 guidance; however, the company beat guidance regarding all-in sustaining costs, reporting $13.82 per payable silver ounces, lower than the lower end of its guidance range of $14.40.
Management also inspired confidence in shareholders with regard to the company's long-term prospects, reporting in its 10-K that the exploratory activities "across seven assets resulting in numerous significant discoveries that are expected to increase resources and life of mine."
Attempting to increase shareholder value, management reported that it bought back 230,000 shares in 2017. But it was an announcement two months ago that reinvigorated investors' enthusiasm to a greater degree. Extending the company's share buyback program, the board of directors approved the repurchase of 8.3 million shares -- 5% of the shares outstanding as of mid-March.
In May, management announced that it had completed the acquisition of Primero Mining. Having completed the deal, First Majestic adds the San Dimas gold and silver mine to its portfolio, which now includes seven operating mines. In conjunction with the acquisition of Primero, First Majestic, according to a recent investor presentation, entered into a stream agreement with Wheaton Precious Metals based on 25% of the gold equivalent production, with ongoing payments of $600 per gold ounce.
Now what
For investors interested in adding silver exposure to their portfolios, First Majestic Silver offers a viable option, considering the metal accounts for about 65% of the company's revenue. Understandably, the company's positive 2017 earnings report and management's effort to return capital to shareholders drove shares higher through the first half of 2018, but it's the acquisition of Primero that may be the greatest example of why the company represents one of the more compelling options for silver-oriented investors.
Summing up its value neatly, Keith Neumeyer, First Majestic's president and CEO, stated in the press release to the acquisition that San Dimas will "result in a transformational leap forward in our production profile with an estimated doubling of profitable ounces produced."
