FIRST MAJESTIC

This is a company that we feel has good potential for a double this year and here’s why: In 2009 the company posted EPS of
.08/share. Most of that came from production before the La Encantada expansion, compared to $6.5M in 2009. That amounts to
.40/share in earnings. Just to be conservative, let’s say they’ll do
.30/share.

Those are very impressive numbers that have not been recognized in the market yet. As of market close of March 16, 2010, Silvercorp (NYSE: SVM) is trading at P/E of 36 and Hecla Mining (NYSE: HL) at P/E of 25. If we project a comparable valuation of, say, 20 times earnings, it would give us a target share price in the $7 range. That’s why we feel that there will be an “aha” moment at some point when the market realizes the value in First Majestic, and that moment is getting closer. The company is trading around $300M market cap as of this writing and we think the shares could double and still be undervalued. Perhaps the main reason for the current conservative valuation is that the market has not yet priced in the production growth from the La Encantada Mine.

Meanwhile, First Majestic is on pace to break the 500,000-ounces-of-silver (equivalent) per-month milestone in March 2010. The equivalent ounces come from lead/zinc, which is less than 10% of overall production. In 2010 the company is aiming to produce 6 million oz of silver at around $7 cost. Not resting on their laurels, First Majestic is plowing ahead with construction of the Del Toro Mine, where they are scheduled to break ground this summer. The Del Toro Mine at planned 2000 tpd will produce 3 million ounces of silver and another 3 million ounces of silver equivalent in lead and zinc. It should start operating at 1000 tpd in the second half of next year and ramp up to full production in 2012. And that won’t be all, either. They still have the Real De Catorce Mine that is scheduled to come online in 2013, which would take them to 13 million ounces of annual silver production. No matter which metric you use, we figure that First Majestic is as good a growth story in the silver space as you can find, and the best part of it is that the market has not clued in yet. It will.