First Majestic holds back 700,000 ozs in 2Q silver sales, citing low prices

First Majestic Silver CEO Keith Neumeyer told analysts deciding to withhold silver ounce sales will allow the company to profit “by a couple of million dollars extra” in the 3Q.

Author: Dorothy Kosich
Posted: Wednesday , 14 Aug 2013

RENO (MINEWEB) -

The decision to suspend the sale of 700,000 ounces of silver in the second quarter because of low silver prices was partly responsible for plunging First Majestic Silver’s net income by 99% to $200,000 in the second quarter of the year.

However, First Majestic’s silver production and silver equivalent production soared by 44% and 55%, respectively, during the second quarter.

“The silver price fell 31% during the second quarter which is equal to the largest quarterly drop during the 2008 financial crisis and the third largest quarterly drop in the past 50 years,” said First Majestic Silver CEO Keith Neumeyer. “As such management decided to suspend a portion of silver sales to await a rebound in prices. While the suspension had a negative impact on this quarter’s revenue and earnings, we are confident that the silver price will revert back to the mean in the near future. In the meantime, regular sales are no taking place in order to allow silver inventories to return to normal levels.”

During a conference call with analysts Tuesday, Neumeyer stressed, “We didn’t make a single sale under $22.80 in the second quarter that’s in the form of doré.” Instead, he predicted, by making the decision to hold back those 700,000 silver ounces, “we profit by a couple of million dollars extra in the third quarter, which is a nice thing.”

During the second quarter, First Majestic exceeded production of 3.2 million ounces of silver equivalent, “which is a major milestone for us,” said Neumeyer, “and we expect to see continued growth over the next couple of quarters with Del Toro kicking in, continually improving and the cyanidation circuit at Del Toro coming on stream late in the third quarter and early fourth quarter, and the improvements and the expansion at San Martin coming to an end. So we expect to see continued growth quarter-over-quarter for the rest of the year.”

The company reported silver production of 2,767,966 ounces in the second quarter of the year, up 44% from 1,917,248 ounces during the second-quarter 2012. Silver equivalent ounce production in the second quarter was up 55% from 2,102,222 ounces of silver equivalent production in the second-quarter 2012 to 3,268,117 silver equivalent ounces. Second quarter production for this year included 1,995 ounces of gold, 5.947 million pounds of lead, 2.9 million pounds of zinc and 5,076 tonnes of iron ore compared to 533 ounces of gold, 3 million pounds of lead, 1.424 million pounds of zinc, and 4,628 tonnes of iron ore mined during the same period of 2012.

The increase in silver equivalent production in the second quarter was primarily attributed to additional production from the new Del Toro Mine, acquisition of the La Guitarra mine in July 2012 and its subsequent expansion.

The company is maintaining its 2013 production guidance of 11.1 million to 11.7 million silver ounces and 12.3 million to 13 million silver equivalent ounces. Full year cash costs are expected to be in line with guidance of $8.56 to $9.15/oz.

FINANCIALS

From May to June of this year, the company committed to reduce spending in exploration, development, plant and equipment by $50 million, focusing on reducing exploration and development and postponing investments in non-critical areas that will not impact production guidance.

For the second quarter of the year, First Majestic reported $200,000 in net earnings, compared to net earnings of $15.3 million or 14-cents per share in the second-quarter 2012. Adjusted net earnings for the second quarter of 2013 were $8.635 million or 7-cents per share, down substantially from $26.92 million or 25-cents per share for the second-quarter 2012.

During the second quarter, the company invested $2.4 million to repurchase and cancel 215,000 common shares. However, Neumeyer told analysts, “The share buyback, as far as I’m concerned, is a luxury. With the metal prices dropping so substantially and our revenues dropping, we’ve got a very major cash burn at Del Toro and that’s a very important project for us to complete. And then that’s really our priority.”

“…As a significant shareholder myself, I’m supportive of a dividend,” he added. “I would like to see it in place, and we will bring a dividend in sometime when we feel it’s appropriate.”

For the first six months of this year, First Majestic reported net earnings of $26.68 million or 23-cents per share, down from net earnings of $41.68 million or 39-cents per share for the same period of last year. Adjusted net earnings for the first half of this year were $33.44 million or 29-cents per share, down from adjusted net earnings of $56.28 million or 53-cents per share for the first half of 2012.

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