Why this Reddit Silver Stock plunged 13.5% in March


What happened

First majestic silver (NYSE: AG) the stock fell 13.5% in March, according to data provided by S&P Global Market Intelligence. That’s a brutal reversal for a stock that gained 34% in the first two months of the year through February.

So what

The First Majestic Silver saga began in January when members of a Reddit discussion board began pumping up the idea of ​​investing in the stock and fueled a short rally in silver. The frenzy even forced a statement from First Majestic at the end of the month, stating that it was “not aware of any material and undisclosed information related to the company that would explain the recent increase in the market price and level. of the volume of transactions “. of its ordinary shares. “

The euphoria was short-lived, however, as nervousness quickly set in after the price of silver hit multi-year highs in February. The prices of silver and silver stocks started to cool, with the trajectory continuing through March.

Image source: Getty Images.

To make matters worse, investors weren’t sure what to make of First Majestic’s March 12 announcement to acquire the Jerritt Canyon mine in Nevada for a deal valued at approximately $ 470 million, excluding bonds. subscription of shares. The thing is, Jerritt is a gold mine.

For investors investing in shares of First Majestic because of the company’s exposure to silver and its goal of becoming the “world’s largest primary silver producer”, the management decision of acquiring a gold mine was surprising. Management, however, went to great lengths to justify their rationale for the impending acquisition, highlighting how it enabled the silver miner to advance in Nevada and how they saw opportunities to extend the life of the mine. , increase production and reduce costs “substantially” at Jerritt. .

On the bright side, Jerritt will be First Majestic’s first mine outside of Mexico, reflecting management’s intention to expand the company’s international presence. Additionally, Nevada is one of the most sought after jurisdictions for mining companies.

Now what

I expect First Majestic to look for other opportunities outside of Mexico to diversify its revenue streams, especially after the miner’s poor relationship with the Mexican government due to an ongoing tax dispute. In addition to the $ 260 million it was already claiming for 2010-2012, the Mexican government recently sent First Majestic another reassessed tax request of $ 132.1 million for 2013. These are substantial amounts, given that First Majestic made $ 23.1 million in 2020 and held cash value. $ 238.6 million at the end of the year.

Although First Majestic is defending itself and also initiated arbitration proceedings in March, the risks remain. And that’s something investors might want to keep in mind.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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