First Majestic Silver Corp. AG recently concluded the previously announced acquisition of a silver stream on 50% of the payable silver produced from First Mining’s Springpole Gold Project. First Majestic will pay a total consideration of $22.5 million, through cash and stocks in three phases, covering the life of the project. The silver stream purchase agreement enhances First Majestic’s silver exposure and provides significant upside potential to higher silver prices, while reducing risks and costs.
The company has made the first payment consisting of $2.5 million in cash and $7.5 million in its shares to First Mining. For all payable silver delivered by Springpole, First Majestic will make cash payments of 33% of the silver spot price per ounce, subject to a maximum of $7.50 per ounce.
Based in Ontario, Canada, Springpole is one of largest undeveloped gold projects covering 41,943 hectares. The project contains NI 43-101 compliant resources of 24.19 million ounces of silver in the Indicated category and 1.12 million ounces of silver in the Inferred category, plus 4.67 million ounces of gold in the Indicated category and 0.23 million ounces of gold in the Inferred category. 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 — 50% of which would be purchased by First Majestic.
It is the company’s first investment outside of Mexico in a mining friendly jurisdiction within Canada. With additional exploration opportunities, the Springpole project’s scale and location makes it an ideal investment option for First Majestic’s long-term portfolio.
In the last reported quarter, First Majestic total production reached 6.2 million silver equivalent ounces comprising 3.2 million ounces of silver and 32,202 ounces of gold due to strong production from its three operating mines. However, the company has withdrawn 2020 production and costs guidance owing to the uncertainty related to the COVID-19 pandemic.
After bearing the brunt of slump in industrial activity amid the coronavirus pandemic, silver has notched a gain of 31% in the second quarter and currently trending at above $18 an ounce. The turnaround can be attributed to optimism over financial stimulus and pickup in industrial activity as economies are gradually opening or easing restrictions. This bodes well for First Majestic’s results.
Price Performance
Shares of the company have gained 20.6% over the past year compared with the industry’s growth of 28.3%.
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 Commercial Metals Company CMC, Clearwater Paper Corporation CLW and The Scotts MiracleGro Company SMG. All of these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Commercial Metals has a projected earnings growth rate of 9.3% for the current year. The company’s shares have gained 12% over the past year.
Clearwater Paper has an estimated earnings growth rate of 1043% for fiscal 2020. Its shares have appreciated 12% in the past year.
Scotts MiracleGro has an expected earnings growth rate of 30.4% for fiscal 2020. The company’s shares have soared 34% in a year’s time.
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