Silver producer shares tumble on Q2 results

First Majestic Silver Corp. [FR-TSX; AG-NYSE; FMV-FSE] shares fell sharply Monday August 13 after the company reported a second quarter loss of US$40 million or 22 cents per share. Adjusted for one-time gains and costs, losses came in at 7 cents per share.

The shares were down almost 15.3% or $1.30 to $7.20 on volume of just over 1.25 million in early trading Monday. The 52-week range is $11.09 and $6.24.

First Majestic is a Mexico-focused mining company. It owns and operates seven producing silver mines. They include the Parrilla silver mine, San Martin silver mine, La Encantada silver mine, La Guitarra silver mine, Del Toro silver mine and Santa Elena silver mine.

Its asset portfolio also includes the San Dimas Mine following the acquisition of the site’s former owner Primero Mining Corp. in May 2018 for $187 million in common shares of First Majestic. Under a new streaming agreement, Wheaton Precious Metals Corp. [WPM-TSX, NYSE] is entitled to receive 25% of the gold equivalent production from San Dimas.

During the second quarter, First Majestic said it recorded an impairment charge of US$31.7 million, or $20.5 million net of tax, after placing the La Guitara Mine on care and maintenance, along with a $4.9 million in acquisition costs related to the Primero transaction.

Second quarter results were also impacted by higher depreciation, taxes and administrative costs.

First Majestic reiterated guidance for 2018, incorporating the newly acquired San Dimas Mine, with production of 12 to 13.2 million ounces of silver expected, or 20.5 million to 22.6 million silver equivalent ounces. Consolidated cash costs are expected to be US$7.18-$7.75 with all in sustaining costs expected to be US$14.53 to $15.83 an ounce.

Silver was trading Monday at US$15.01 an ounce on Monday.

On the brighter side, revenues generated in the second quarter totaled US$79.7 million, an increase of 33% compared to $60.1 million in the second quarter of 2017. This was largely due to the acquisition of the San Dimas Mine and a 43% increase in silver equivalent ounces sold, partially offset by a 3% decrease in average realized silver price compared to the year ago quarter.

Silver production of 2.8 million ounces marked a 27% increase from the first quarter of 2018, the company said.

“During the 52 days since being acquired, San Dimas made an immediate impact to our production profile and bottom line by producing 808,923 ounces of silver, plus 11,384 ounces of gold and generating mine operating earnings of US$5.1 million, said Majestic President and CEO Keith Neumeyer.

“Additionally, the AISC [all-in sustaining cost] at San Dimas came in at $5.41 an ounce, making it our lowest cost and largest producing mine,” Neumeyer said.