Silver and gold miner stocks Majestic First Silver (AG 9.23%) rose sharply on August 4, rising just under 12% at one point and ending the day with a 9.4% gain. The rise was driven by two factors: second quarter results and rising precious metal prices.
As a producer of precious metals, First Majestic’s results are dependent on the price of silver and gold. To simplify, he differentiates between his production costs and the prices at which he can sell what he produces. Silver and gold were both higher today, bolstering investor sentiment on the companies that produce these metals. It was tailwind #1.
In addition to higher commodity prices, First Majestic also released its second quarter 2022 results today. Although the company’s adjusted loss was $0.02 per share, down significantly from the earnings of $0.05 per share from the prior year period, there were some significant positives in the quarter. For example, production increased 20% year over year and 7% sequentially from the first quarter.
Meanwhile, all-in sustaining costs (AISC) – a measure of the cost to produce an ounce of metal representing the investment required to maintain production – rose 3% year over year, but were down 5% sequentially from the first quarter. And management expects AISC to continue to decline as the year progresses as it continues to work on cost containment efforts and production continues to increase at two mines. Increased production and lower costs are a very positive combination for profitability, assuming silver and gold prices remain high.
Investors were clearly pleased with the combination of higher silver and gold prices and the company’s expectations for increased production and lower costs. However, precious metal prices are volatile and subject to dramatic movements. So while the fundamental story in the quarterly report was decent, the stock will still trade on sentiment, which is usually driven by gold and silver prices.