First Majestic Silver Looks Shiny

Look at this chart of First Majestic Silver (FR.TO). The stock gapped up and held:

First Majestic Silver has always been my top pick. I estimated $5.5 million (in my company updates during July) for earnings and today they reported Q2 earnings of $8.9 million, which is really outstanding. From the end of last year until the end of Q1, they were working on a major expansion at one of their mines. That expansion is now completed.

Cash flow was $0.14 per share which amounts to $13 or $14 million.

All of this is significant for two reasons:

1- This is all with Silver sub $20; and,
2- Now with quarterly cash flow at that rate, they wont have to do a huge financing for the capital costs of the next mine (which the company thinks could be their biggest).

They are on track for 7 mil oz of Silver-equivalent production (some zinc, gold) this year. If things go reasonably well, they should produce 10 million ounces in 2012 with limited dilution and/or financing.

Even with recent strength in the stock, the market cap is ~$420 million. As far as resources in the ground, they have far more compared to the other companies in the space. With a $30 silver price, they should do $0.20 in quarterly EPS in 2012. At $35 silver, the stock is a 10-bagger. $50 silver a lot more.

I just hope they don’t get bought out. Few junior mining companies are able to become a major. They usually get taken out along the way. Yamana Gold is one of the few recent ones that was able to go from a tiny company to a major player.

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Jordan Roy-Byrne, CMT