Author: Anthonette Clerigo

Kerrisdale Analysis On First Majestic: A Critical Review

The Critical Investor, 16 September 2016

First Majestic Silver Corp. (NYSE: AG , TSX:FR), a large silver producer, took an 8% hit on September 1, 2016 right after opening, after a shorting report was published by the shorting hedge fund Kerrisdale Capital Management on my longtime platform for writing investment analysis, Seeking Alpha. I’m not really into producers as I focus predominantly on juniors, but this analysis was all over the internet and quickly got on my radar.

The first thing that piqued my curiosity, before even reading the piece, was the chart, to see what the impact would be, a few hours after opening at the time. To my surprise, First Majestic already started recovering after the initial sell-off. Even more surprisingly, looking a bit further, the stock appeared to have lost already 32-33% since the peak a few weeks ago, even before the Kerrisdale analysis was published. This was due to a sector-wide correction on lower precious metal prices, in turn caused by Fed rate hike rumours:
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Kerrisdale declares short position in First Majestic Silver

HENRY LAZENBY, 01 September 2016

Hedge fund firm Kerrisdale Capital has declared short positions in and own option interests on the stock of Canadian primary silver producer First Majestic Silver. Kerrisdale on Thursday published a report highlighting its belief that the miner was in a “speculative frenzy” and that the company’s valuation was “outrageously detached from reality”.

The New York-based hedge fund firm argued that First Majestic’s stock price could fall between 70% to 80% from its Thursday opening price of $12.02 apiece.

According to Kerrisdale’s latest 13F filing, its US equity portfolio was worth almost $370-million at the end of June, 36.86% less than it was worth at the end of March. The fund, which has staked its bets on a rebound in the technology sector, struggled during the first half of the year, losing 12.1% during the period, compared with the S&P 500 ending the first half with gains of 3.8%.
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First Majestic Silver Has 80% Downside: Kerrisdale’s Latest Short Report

Jayson Derrick, 01 September 2016

First Majestic Silver Corp AG 0.03% , a mining company that focuses on silver production, exploration, and development in Mexico is an “absurdly overvalued”, “heavily promoted” stock that has been driven by a “speculative frenzy,” according to Kerrisdale Capital.

Kerrisdale Capital began its short thesis on First Majestic by pointing out that like all mining companies, First Majestic’s stock price is obviously tied to the commodity it explores. The company’s stock fell 90 percent from the peak of the silver market in 2011 to recent lows. On the other hand, the stock seems to have “gotten a new lease on life” and surged 268 percent since the start of the year, marking an increase eight times larger than the actual gains silver notched.

As such, Kerrisdale estimates the stock is now trading at 5x its net asset value, which marks an “astonishing” premium to its peers and a “gross violation of common sense.”
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FIRST MAJESTIC SILVER CORP (AG) VALUATION UP IN THE CLOUDS, BUT NO SILVER LINING: KERRISDALE

ValueWalk, 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.
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Kerrisdale Capital Releases Negative Report on First Majestic Silver Corp. (AG / FR) and Announces Conference Call Schedule

MarketScreener, 01 September 2016

Mining Company’s Stock Price Is Ridiculously Overvalued After Paid Promotional Campaign
-First Majestic trades at a uniquely ludicrous multiple of the value of the precious metals it owns, with 70-80% downside
-Sell-side estimates, comparisons to peers, and even First Majestic’s own internal models confirm that the company is massively overvalued
-First Majestic and an affiliated company have recently hired stock promoters to hype their prospects to an audience of retail investors
-First Majestic’s founder and CEO is a former professional stock promoter, with ties to a defunct Panamanian brokerage firm implicated in pump-and-dump scams and insider trading
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