During the third quarter of 2011 First Majestic's (AG) stock sold off on the news that production would fall short of targets due to the La Encantada mine encountering an area of high manganese, hampering silver recoveries. Since then the once high flying silver stock has spent time building a base and in the past week the stock moved above the $20 per share area as the investors realize that the market overreacted.
Two weeks ago First Majestic released fourth quarter and 2011 production numbers with 2.1 million silver equivalent ounces of production and 7.56 million SEOs for all of 2011, increases of 8 and 17 percent over year ago periods, respectively.
Guidance for 2012 has production reaching 8.9 to 9.4 million SEOs with the expansion at La Parrilla, improvements at La Encantada, and the opening of the Del Toro mine driving the increase.
The La Parrilla expansion will increase capacity to 2,000 tpd and should be operating at full capacity in February. The focus now shifts to the construction of a 2,000 tpd shaft at Rosarios and the construction of an underground rail system that will connect the four mines on the property. $20 million dollars has been budgeted for these capital projects.
Del Toro continues to move forward with a new Preliminary Economic Assessment due at the end of the first quarter of 2012. The new 4,000 tpd dual circuit mill will replace the 2,000 tpd mill in the original assessment. The new plan calls for 1,000 tpd to be completed by the end of 2012 with an expansion to 2,000 tpd in 2013, and 4,000 in 2014.
First Majestic is the stock with the greatest leverage to silver prices with 96% of revenue being tied to the price of silver and significant organic growth potential with production estimated at 16 million ounces for 2014.
Investors looking for one of the leading silver stocks should start with First Majestic whose management and growth prospects place the company as the leading producer in the silver mining sector.
Disclosure: I am long AG.
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