TGR: You mentioned First Majestic. As of late March, it was the largest equity holding in the Sprott Canadian Equity Fund. Why does the fund have such a significant position in that name?

"It is very comforting to see retail buyers choosing in droves to own the physical metal. We hope that leads to higher market prices for gold and silver, and in turn to a rally in the stocks."

MS: Our initial investment in First Majestic was at less than $4/share. Today, the stock is $10 or $11/share. The position has grown because of price appreciation, as well as subsequent purchases.

First Majestic is one of the best silver plays out there. The management team has definitely delivered on its promises. The company built five mines and is adding two more. It is one of the purest silver producers out there; 90% of the production is silver.

Management has done well keeping costs under control. The total cash costs are virtually unchanged since 2008 at about $9/oz. Production is still growing. We think the silver equivalent production could double from 2012 to 2014. The stock is trading at about eight times next year's projected cash flow. This is a very reasonable multiple using the current silver price.

TGR: Is First Majestic an example of Sprott's approach to the equities? Even though overall things may not be that great in the sector, some very good performers exist.

MS: Absolutely. To me the key is to find the companies that can survive a tough market, exceed expectations, deliver on their promises and generate free cash flow. That describes First Majestic....

TGR: Is there an across-the-board percentage recovery you would predict?

MS: Some stocks are down 50%–60%; they could double or triple. First Majestic used to be a $20/share stock; it will go back there and then some based on earnings alone.

http://www.theaureport.com/pub/na/15299