Why First Majestic Silver Stock fell 12.9% in July after improving its outlook for 2021


What happened

Actions of First majestic silver (NYSE: AG) fell 12.9% in July, according to data provided by S&P Global Market Intelligence, even as the miner reported strong preliminary numbers for its second quarter and improved its forecast for the full year. But that was not enough to boost investor confidence in the silver stock, as concerns over its recent expensive acquisition continue to persist.

So what

First Majestic will release its second quarter numbers on August 16. With increased output from its three operating mines, silver production is expected to increase 13% year-on-year to 3.3 million ounces. And its gold production is expected to be up 95% year on year thanks to the contribution of the Jerritt Canyon mine, acquired by First Majestic in April.

Image source: Getty Images.

Supported by the addition of Jerritt Canyon and higher throughput expected at all of its other mines, First Majestic has improved its production forecast for the year as follows:

MetricPrevious direction for 2021 Revised guidance for 2021Actual 2020
Silver production (ounces)12.5 million to 13.9 million13 million to 13.8 million11.6 million
Gold production (ounces)100,000 to 112,000181,000 to 194,000100 081
Production of ounces of silver equivalent20.6 million to 22.9 million25.7 million to 27.5 million20.4 million

Data source: First Majestic Silver. Table by author.

These revised forecasts sound impressive, but there is a catch: Along with growing production, First Majestic also expects costs to be significantly higher this year.

Specifically, First Majestic now expects All-Inclusive Sustaining Costs (AISC) for 2021 to be between $ 17.86 and $ 18.63 per Silver Equivalent Ounce (SEO) against its Previous forecast of $ 14.81 to $ 15.99. That would be a significant jump from its 2020 AISC of $ 13.92 per referral, which was already 10% higher than 2019. On its second quarter earnings conference call, management acknowledged that Jerritt Canyon costs are higher, and she tries to approach it.

Additionally, First Majestic increased its capital expenditure forecast 22% to $ 205.3 million for the year, primarily due to Jerritt Canyon.

All of these factors, along with a drop in silver prices, weighed on stocks in July.

Now what

First Majestic has always been known as a silver mining company, so its decision to venture into gold with an expensive acquisition has not been well received by investors. While the acquisition diversifies the company’s reach beyond Mexico, the stock will likely remain out of favor with investors until management can reduce Jerritt Canyon costs and unlock the value of the acquisition. .

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! Questioning 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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