First Majestic suspends Jerritt Canyon, stock falls

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First Majestic Silver Corp. [FR-TSX, AG-NYSE, FMV-Frankfurt] shares fell sharply Tuesday after the company said it is temporarily suspending mining activities and reducing the workforce at its Jerritt Canyon mine in Nevada, effective immediately.

It attributed the move to a combination of ongoing challenges at the mine, which include contractor inefficiencies, inflationary cost pressures, lower than expected head grades and multiple extreme weather events affecting northern Nevada.

Processing of remaining surface stockpiles (about 45,000 tonnes) will continue for the next couple of months, and the company will continue exploring both near mine and prospective regional greenfield targets to grow Jerritt Canyon resources.

As a result of the suspension, the company said its previous production and cost guidance for Jerritt Canyon can no longer be relied upon.

On Tuesday, First Majestic shares plunged 25% or $2.52 to $7.66 on volume of 1.92 million. The shares are currently trading in a 52-week range of $18.41 and $8.06.

First Majestic is a Mexico-focused mining company, which reported record production of 31.3 million ounces of silver equivalent (AgEq) in 2022. It also owns and operates the San Dimas silver-gold mine, the Santa Elena silver-gold mine and the Le Encantada silver mine. Production from these mines is expected reached 20.4 million silver equivalent ounces in 2020.

Under a streaming agreement, Wheaton Precious Metals Corp. (WPM-TSX, WPM-NYSE) is entitled to receive 25% of the gold equivalent production from San Dimas.

Jerritt Canyon owns and operates the Jerritt Canyon Gold Mine, which is located in Elko County, Nevada and accounts for about 30% of the company’s silver equivalent production.

Jerritt Canyon was discovered in 1972 and has been in production since 1981. It has produced over 9.5 million ounces of gold over its 40-year history.

The mine currently operates as an underground operation and has one of three permitted gold processing plants in Nevada that use roasting in its treatment of ore.

The processing plant has a capacity of 4,500 tonnes per day and is currently operating at an average rate of approximately 2,200 tonnes per day due to limited ore production from two underground mines.

Over the past 22 months, since the acquisition of the Jerritt Canyon mine, the company has focused on increasing underground mining rates in order to sustainably feed the processing plant at a minimum of 3,000 tonnes per day in order to generate free cash flow.

Despite these efforts, the company said mining rates have remained below this threshold and cash costs per ounce have remained higher than anticipated primarily due to ongoing challenges. “The decision to temporarily suspend mining activities at Jerritt Canyon, which represented approximately 21% of the company’s 2022 revenue, was driven by our goal to produce profitable ounces across the company,’’ said First Majestic President and CEO Keith Neumeyer.

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