With us today is Frank C. Smeenk President & Chief Executive Officer of KWG Resources Inc. Mr. Smeenk discusses recent conversation with Noront Resources after proposed acquisition of Cliffs Chromite was announced.
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The Canadian silver mining company, First Majestic Silver (NYSE: AG), operates in Mexico. It has four underground mines: La Encantada, San Martin, La Parrilla and Del Toro. La Encantada is the largest of all mines which produces more than half of the company’s production. The company produces and sells its own bullion bars and rounds.
Recently, First Majestic Silver announced its earnings for the fourth quarter, 2012. The company reported a 5% increase in its earnings, thanks to higher output and better silver prices. Earnings grew to $22.4 million or 19 cents a share versus $21.3 million or 20 cents a share last year. Revenues were up 17% to $71 million.
Production stood at 2.56 million silver equivalent ounces, 22% higher than the last year. For the year, production was up 20% to 9.1 million silver equivalent ounces. Cash costs grew 16% to $9.26 per ounce. As far as prices were concerned, average realized prices were up 2% to $32.42 per ounce.
Last week, the company lost its bid on acquiring the world’s largest underdeveloped silver mine, Orko Silver’s La Preciosa project, to Coeur d’Alene Mines. Coeur d’Alene agreed to pay $337 million for the project.
Forecast for 2013
In 2013, the company expects to produce 12.3 to 13 million ounce equivalent, an increase of 34% to 42% from 2012. In this quarter, analysts expect First Majestic Silver to earn $0.28 per share on revenues of $72.78 million. For the full year, analysts’ estimates stand at $1.40 a share on $422.52 million revenue.
First Majestic Silver is trading at a forward P/E (1yr) of 8.10x and has a healthy PEG of 0.47. One of the hallmarks First Majestic Silver is its whopping operating margin of 43%. During the last five years, its operating margin has averaged close to 41%. A current ratio of 3.02 testifies company’s strong liquidity position. A mean recommendation of 1.7 on the sell side suggests that it’s one of the top buys in the silver industry. According to the sell side, it has a mean target price of almost $24, which shows that it’s undervalued by a mammoth 48%.
Silver Industry’s Major Players
Based in Vancouver, Canada, Silver Wheaton (NYSE: SLW), not only produces silver but also sells silver mined by other companies. It is trading at a forward P/E (1yr) of 15.28x, making it a rather expensive buy in the silver industry. A PEG of 0.28 shows that it’s a hugely undervalued stock. A mean target price of $48 on the sell side depicts that it has an upside potential of almost 52%. Plus, a mean recommendation of 1.7 on the sell side testifies the fact that it’s a must buy in the silver industry.
On the other hand, Endeavour Silver (NYSE: EXK) is trading at a forward P/E (1yr) of 10.62x and has a mean recommendation of 2 on the sell side. Using earnings multiple, I value Endeavour Silver at $9, showing an upside potential of around 48%. This makes Endeavour Silver one of the best buys in the silver industry along with First Majestic and Silver Wheaton. You can have a further look at my detailed take on Endeavour Silver Corporation here.
Going forward, the biggest catalyst for First Majestic Silver would be its Del Toro mine. By the end of second quarter, the company would be producing significant amount of silver bars from the mine. During the final phase of production at Del Toro, it is expected to become company’s largest operation and is estimated to produce over 6 million ounces of silver per year. Apart from this, further development at La Encantada, San Martin, and La Parrilla would make sure that the company produces more than 12 million ounces of silver this year. Further, more demand for industrial silver in 2014 means higher silver prices next year. The bottom line is that First Majestic Silver is still among the top silver stocks in the industry. Hence, I definitely recommend buying it.
More Expert Advice from The Motley Fool
If you are looking for a company whose success is determined by the metals market, but without involving itself in the risks of physically mining the metals, then Silver Wheaton provides a unique play on the future of silver. SLW chooses to finance the mining of silver; it has grown sales and net income every year since 2008, and also has increased competitive advantages over its limited peer group. More details about our outlook for Silver Wheaton can be found here in our Motley Fool analyst report.