First Majestic Silver Corp. (AG) Valuation Up in the Clouds, but No Silver Lining
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Kerrisdale Capital, 01 September 2016
First Majestic Silver Corp. is, in the words of its founder and CEO, “the purest silver company in the world,” with six operating mines and a handful of development projects, all located in Mexico. Like any miner, First Majestic has seen its market value fluctuate in sympathy with the price of its key commodity; from the peak of the silver market in 2011 to its recent low point, for instance, First Majestic declined 90%. As precious-metal prices have rebounded, however, First Majestic has gotten a new lease on life, rising 268% year-to-date – an increase eight times larger than that of silver itself.
This speculative frenzy – exacerbated by an ongoing, company-funded stock-promotion campaign – has gone too far: First Majestic’s valuation is now outrageously detached from reality. We estimate that the company trades at 5x net asset value (NAV) – an astonishing premium to peers and a gross violation of common sense. While the market prices other precious-metals miners at just 17% of the spot value of their measured and indicated mineral resources – gold and silver in the ground that still need to be extracted, processed, and sold over many years, justifying a large discount – First Majestic trades at a whopping 77% of this value. Not only is the company ludicrously expensive relative to its peers; it’s also expensive relative to its own history. For example, compared to the last time the price of silver was at its current level, First Majestic’s stock price is now 17% higher – yet its silver reserves per share are now 30% lower.
