As New Year's Eve quickly approaches, and we prepare to make our 2013 investing resolutions, it's a good time to reflect on the materials sector in the year that was 2012. In this December series, our writers will be recapping some of the most popular, highest-performing stocks in this sector. We'll examine whether the gains these companies provided their shareholders in 2012 are sustainable, or whether they merely can be attributed to one-time events or fizzling trends. Consider these pieces as gifts to benefit our Foolish, long-term investors seeking exposure to the materials sector. Enjoy, and Fool on!
When you are simply at the top of your game, and your business is mining, then you just might be a rock star. Silver miner First Majestic Silver (AG -0.29%) has launched into superstardom as the company's astonishingly consistent execution in the pursuit of low-cost production growth has rewarded shareholders handsomely over the years.
As of Friday's close, First Majestic's shares had mined and milled their way to a peer-leading 36% advance year to date. Not even the most-recognized name in silver -- Silver Wheaton (WPM 0.15%) -- has climbed high enough to surpass that mark this year. The relevant benchmark, Global X Silver Miners ETF (SIL -0.10%), meanwhile, has seen a corresponding gain of only 10%, while bullion proxy iShares Silver Trust (SLV -0.36%) added 16%.
But just as I sought to offer my readers a look back at another brilliant performance in 2012, the rock-star duo of CEO Keith Neumeyer and COO Ramón Davila released another brand new hit that's destined to be a chart-topper. Over the weekend, First Majestic announced the friendly acquisition of Orko Silver (NASDAQOTH: OKOFF) in a share-based transaction valued at $393 million. First Majestic's shares shed more than 7% Monday morning in the wake of the announcement, presenting what I consider an extremely compelling entry point for discerning silver investors.
This is a huge win for First Majestic and its shareholders, in my opinion, adding one of the world's largest undeveloped silver deposits -- the aptly named La Preciosa -- to the company's already-glistening asset portfolio. And clearly, with the bonus of a healthy 69% premium, it's also a major victory for Orko shareholders in the wake of Pan American Silver's (PAAS) surprise departure from the project earlier this year. At the deal's implied value of $2.76 per share, Fools who heeded my recommendation of Orko Silver as a top stock for 2012 could close the year with better than an 80% gain. Happy holidays!
3 giant leaps for First Majestic in 2012
Steady growth trajectories like the one that First Majestic continues to build involve meaningful achievements through all aspects the company's operations, but for this year-end retrospective I would like to highlight three watershed developments in particular.
Although the producing La Guitarra mine and its surrounding development targets were acquired through a far smaller-scale transaction than the recently announced bid for Orko Silver, there is nothing small about the potential for this property package to add meaningful shareholder value. I had the pleasure of visiting the La Guitarra mine last month during a tour of several First Majestic operations, and I was struck by the sheer speed with which the company has streamlined operations to yield dramatically lower operating costs. Meanwhile, the bigger picture involves an array of very exciting exploration targets, and even an opportunity for a second standalone mine on the property. I believe that the market has scarcely begun to account for the full value of La Guitarra, and therefore I view this important acquisition as a likely contributor to continued outperformance for the stock during 2013.
Throughout 2012, the successful completion of an ambitious mine and mill construction at the emerging flagship Del Toro mine remained First Majestic's dominant priority; and it shows! What will begin very shortly as an initial 1,000-ton-per-day operation has been intelligently designed with the necessary footprint for the mine's subsequent throughput of 4,000 tpd slated for 2014. Following a very respectable output of 3.6 million silver-equivalent ounces during 2013, First Majestic projects that Del Toro alone will produce 7.2 million SEOs beginning in 2014. That represents a near-doubling of the company's consolidated production over the next two years and is likely to be a key catalyst behind the stock's splendid performance during 2012.
A view of the milling and grinding circuit at Del Toro, as it appeared during the author's visit to the construction site in November. First production from Del Toro is now imminent, adding to the long list of First Majestic's beautifully executed achievements in the company's ceaseless quest for growth. Photo by Christopher Barker.
In its initial response to the third major development for First Majestic Silver during 2012, I believe the market is completely out of whack. Although the proposed Orko Silver acquisition outlined above can't yet be considered among the developments that boosted share performance during 2012, we Fools can nonetheless stand in awe of the phenomenal shareholder value that this team of expert operators is bound to unlock from this world-class silver deposit. La Preciosa is ideally situated in convenient range of the company's base of operations in Durango, and close to the miner's La Parilla and Del Toro mines. More importantly, the project's timeline fits like a glove with the company's existing project schedule, presenting the next major construction project to follow ramp-up activities at both La Guitarra and Del Toro.
As each of the high-quality silver assets underlying the three major developments for First Majestic Silver in 2012 is further cultivated by the company's outstanding management and skilled personnel, I look forward to continued outperformance of these shares over those of their silver-mining peers over an extended time horizon. Accordingly, First Majestic remains a core position within my own investment portfolio, and it will find a spot among my forthcoming recommendations for the top silver investments in 2013.
