First Majestic Silver Stock (AG) – Investment Analysis

Common Stock: First Majestic Silver (NYSE: AG)

Current Market Price: $10.84 USD

Market Capitalization: $2.4 billion USD

**Note: All values in this article are expressed in United States Dollars (USD) unless otherwise noted.

First Majestic Silver (AG) - Stock Chart
First Majestic Silver (AG) – Stock Chart

First Majestic Silver Stock – Summary of the Company

First Majestic is a silver mining company focused on the acquisition, exploration, development, and operation of silver properties. The company is 100% focused on properties in Mexico. They own 3 mines that are currently producing and 4 that are in care and maintenance. In addition they have several exploration and development stage projects. First Majestic was founded in 2003 and is headquartered in Vancouver Canada. The company employs over 7,000 direct employees and contractors.

First Majestic Silver - Property Map
First Majestic Silver – Property Map

Revenue and Cost Analysis

In 2019 First Majestic had total revenue of $364 million, a significant increase from $301 million in 2018. Income from mining operations was $66.2 million in 2019, also an improvement compared to a loss of $11.9 million in 2018.

Silver sales represented 58% of total revenue in 2019 with gold representing 39%. Total production was 13.2 million ounces of silver, a significant increase over previous years. The company’s all in sustain cost was $12.64 per ounce of silver, also an improvement over previous years.

First Majestic Silver - Revenue and Cost Breakdown
First Majestic Silver – Revenue and Cost Breakdown

Despite the company’s increased production and decreased costs per ounce, First Majestic still had a net loss of $40.4 million in 2019. However this is a significant improvement over its net loss of $204.1 million in 2018.

First Majestic Silver – Royalty and Streaming Agreements

The Santa Elena mine has a purchase agreement with Sandstorm Gold, which requires the Company to sell 20% of its gold production over the life of mine from its leach pad and a designated area of its underground operations of the Santa Elena properties, which excludes the Ermitaño, Cumobabi, El Gachi, and Hernandez properties . The selling price to Sandstorm is the lesser of the prevailing market price or $450 per ounce, subject to a 1% annual inflation. During 2019 the Company sold 9,164 ounces of gold to Sandstorm at an average of $459 per ounce.

The San Dimas mine has a purchase agreement with WPMI, which entitles WPMI to receive 25% of the gold equivalent production (based on a fixed exchange ratio of 70 silver ounces to 1 gold ounce) at San Dimas in exchange for ongoing payments equal to the lesser of $600 (subject to a 1% annual inflation adjustment) and the prevailing market price, for each gold equivalent ounce delivered under the New Stream Agreement.

First Majestic Silver – Mineral Resources

The company has proven and probable mineral reserves totaling 85 million ounces of silver and 733 thousand ounces of gold.

First Majestic Silver -Mineral Resource Estimate
First Majestic Silver -Mineral Resource Estimate

Balance Sheet Analysis

First Majestic has a solid balance sheet. They have a good portfolio of assets, sufficient liquidity, and reasonable liability levels.

First Majestic Silver – Debt Analysis

As of December 31, 2019, First Majestic has total debt outstanding of $155.8 million, $1.2 million of which is classified as current. In addition the have lease obligations totaling $21.9 million, $6.9 million of which is classified as current.

First Majestic Silver - Debt Table
First Majestic Silver – Debt Table

First Majestic Silver Stock – Share Dynamics and Capital Structure

As of September 2020 First Majestic has 221.1 million common shares outstanding. In addition they have 7.3 million options outstanding. Fully diluted shares outstanding is around 228.4 million shares.

First Majestic Silver Stock (AG) - Share Structure
First Majestic Silver Stock (AG) – Share Structure

First Majestic Silver Stock – Dividends

First Majestic has never paid a dividend and is unlikely to do so in the near term, as management has stated they intend to retain all earnings for the foreseeable future.

Management – Skin in the game

Insiders at First Majestic have been net sellers of the company’s stock in the recent past. This is generally viewed as a bearish signal by investors.

First Majestic Silver Stock (AG) - Insider Trading
First Majestic Silver Stock (AG) – Insider Trading

First Majestic Silver Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

$365.6 million / $662.3 million = .55

A debt to equity ratio of .55 indicates that First Majestic uses a mix of debt and equity in its capital structure, but relies more heavily on equity financing.

Working Capital Ratio

Current Assets/Current Liabilities

$243 million / $71.8 million = 3.4

A working capital ratio of 3.4 indicates a sound liquidity position. First Majestic should not have problems meeting its near term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

$10.84 / $2.90 = 3.7

Based on fully diluted shares outstanding First Majestic has a book value per share of $2.90. At the current market price this implies a price to book ratio of 3.7, meaning the company’s stock currently trades at a premium to the book value of the company.

Silver Market – Economic Factors and Competitive Landscape

Silver mining is a highly competitive, capital intensive business. The company will need to compete fiercely for both new projects and capital. However, given the current economic environment of global money printing and zero or negative interest rates, it would appear silver companies are poised to benefit from a strong economic tailwind.

First Majestic Silver Stock – Summary and Conclusions

First Majestic is a solid company and investable in my opinion. The company has a strong asset portfolio, all in Mexico, with 3 producing mines, 4 mines in care and maintenance, as well as several exploration and development stage projects. They are healthy financially, with a good liquidity position and manageable liability and debt levels. Their capital structure is not overly dilutive and therefore shareholder friendly. The company is poised to benefit greatly from higher silver and gold prices.

Although First Majestic is an acceptable addition to most precious metals portfolios, I am not sure it fits into my portfolio at this time. The company’s jurisdictional risk is highly concentrated, and given that I already have a lot of exposure to Mexico via Minera Alamos stock and Fortuna Silver stock, which are both core positions, I don’t think it makes sense for me to add First Majestic stock at this time.

I will continue to monitor the company and may take a position at any time, depending on the performance of other companies in my portfolio.


This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.

This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.

Patrick Flood, CFA

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