First Majestic Silver Corp. AG has entered into a silver stream purchase agreement with Gold Canyon Resources Inc., a wholly-owned subsidiary of First Mining Gold Corp. (“First Mining”). Per the agreement, First Majestic acquires a silver stream on 50% of the payable silver produced from First Mining’s Springpole Gold Project for a total consideration of $22.5 million, payable in cash and stocks in three phases, covering the life of the project. For all payable silver delivered, the company will make a cash payment for 33% of the average silver spot price per ounce subject to a maximum of $7.50 per ounce to First Mining.
The agreement also states that First Mining will issue 30 million share-purchase warrants to First Majestic on the deal’s closure. Each of these warrant will enable the company to buy one share of First Mining for C$0.40 over a five-year period after conclusion of the deal.
Based in Ontario, Canada, Springpole is one of largest undeveloped gold projects with an estimated Indicated Resource category of 24.19 million ounces of silver and 4.67 million ounces of gold. According to the Preliminary Economic Assessment (PEA) in 2019, average silver production from Springpole is estimated to reach 2.4 million ounces per year. A total of 22 million silver ounces is expected to be produced during the life of the project.
Notably, the latest silver stream purchase agreement enhances First Majestic’s silver exposure and provides significant potential to boost silver prices, while reducing risks and costs. With additional exploration opportunities, the Springpole project’s scale and location makes an ideal investment option for First Majestic’s long-term portfolio.
In the March-end quarter, First Majestic produced consolidated silver equivalent ounces of 6,195,057, down 1% from the prior-year quarter. The company’s consolidated gold production was 32,202 ounces compared with the year-ago quarter’s 32,037 ounces. Consolidated silver production declined 6% year over year to 3,151,980 ounces.
The company’s operations at San Dimas, Santa Elena and La Encantada mines were temporarily suspended in April in compliance with the Mexican Ministry of Health’s decree to mitigate the risks associated with COVID-19. The coronavirus pandemic is likely to hurt First Majestic’s near-term production and liquidity.
Silver prices have started to gain momentum triggered by anticipations of an economic recovery in the second half of the year. This is expected to revive demand for silver given its wide industrial usages. Moreover, a pick-up in manufacturing activity in both United States and China will drive demand for white metal.
Price Performance
Shares of the company have gained 40.4% over the past year, outperforming the industry’s growth of 25.8%.
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Zacks Rank & Stocks to Consider
First Majestic currently carries a Zacks Rank #3 (Hold).
Some other better-ranked stocks in the basic materials space are Northern Dynasty Minerals, Ltd. NAK, Clearwater Paper Corporation CLW and AngloGold Ashanti Limited AU. All of these stocks currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northern Dynasty Minerals has a projected earnings growth rate of 32% for the current year. The company’s shares have surged 181% over the past year.
Clearwater Paper has an estimated earnings growth rate of a whopping 693% for fiscal 2020. Its shares have rallied 89% in the past year.
AngloGold Ashanti has an expected earnings growth rate of 112% for fiscal 2020. The company’s shares have soared 70% in a year’s time.
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