Three years ago, when silver traded at under $20 an ounce, I
wrote about a small Canadian mining company. This tiny company was
making a name for itself by extracting the precious metal from rich
veins in Mexico.
Now, silver has risen to $45 and many investors are wondering if
this metal has gotten too rich to invest in. Check out this three
year chart which shows the price of silver surging.
Back then I wrote:
"This Vancouver, B.C. based company has a slew of positive
factors on its side, including growing revenue and production and
falling operating costs, a stellar management crew, demand for
silver that analysts predict will outperform gold in 2008, and
current and future mines nested in the fertile underground of
I was talking about
First Majestic Silver (NYSE: AG; FR
, a stock that has risen nearly 10-fold since 2009 to become a $2.3
You can pretty much change the '2008' to '2011' in that
statement and it'll still be reasonably accurate, with one key
difference - Silver Majestic has embarked on an aggressive program
to become a senior silver miner and shed the junior moniker. CEO
Keith Neumeyer has set the company's goal at annual silver
production of 20 million ounces.
In the first quarter of 2011 First Majestic's stock climbed 46
percent. That's on top of a commanding 269 percent price gain in
2010. Bottom line - this has been an exceptional performer if you
purchased shares essentially any time before this April.
The company (and shareholders) has enjoyed sustained gains
primarily because of increased production.
The company owns three producing silver mines and is working on
two development projects in Mexico. The oldest is the La Encantada
mine, which the company has expanded several times in the past five
years. Current production plans call for an 18 percent increase to
4.5 million ounces of silver in the form of Dore bars in 2011.
First Majestic has a cost advantage over other traditional
miners because it works in Dore bars. Its final refining process is
much cheaper than if it worked with raw ore, reducing costs by 80
The company just reported that in the first quarter its silver
was 97 percent pure - it claims this is the highest purity level in
the industry. It also reported that production rose 13 percent, to
1.83 million ounces, from the year before. Continued production
growth powers higher revenues, and with $45 silver this company is
First Majestic's financials are impressive - it has $41 million
in cash and no long-term debt. In 2010 gross revenue rose 85
percent to $132.2 million, net income rose 472 percent to $36.1
million, and silver production grew 72 percent to 6.5 million
ounces. Those are numbers I can live with.
Even better, over this same period First Majestic cut production
costs by 6 percent to $7.94 per ounce.
First Majestic adds an interesting twist for precious metal
investors - the company sells silver directly to end-users via its
website. Currently the company is selling nearly 40,000 ounces of
silver per month through its
CEO Neumeyer also has indicated that the company might start paying
a dividend in 2012.
Majestic Silver has experienced huge growth in the past three
years as it grew to a multi-billion company. But there are ample
opportunities still to profit from $45 silver, especially in the
smaller companies. For instance, a silver miner that we recommended
in June is now up 240 percent.
Another exploration company has seen shares rise by more than 35
percent - both of these companies are in my
Sierra Madre Silver Special Report.
Silver is a story that still has room to run, investors just
need to find the companies that are in the sweet spot to post
sustained gains in production growth and share price. The report
above is one place to get started finding the right stocks, and in
a couple of weeks we'll be airing a webinar with more details
regarding selecting the right silver mining stocks for your
portfolio. Stay tuned.