A Majestic Selection in Silver

05/28/2020 5:00 am EST

Focus: COMMODITIES

Michael Murphy

Editor, New World Investor

The gold/silver ratio has fallen from 125 earlier this year to 100 as silver starts to outperform gold, as it does in gold and silver bull markets, notes Michael Murphy, editor of New World Investor — and a participating speaker at MoneyShow's Virtual Event on June 10-12.

Silver remains very undervalued versus gold, but banks now can count their gold holdings as risk-free assets for regulatory compliance, so we don’t know if or when the gold/silver ratio will go back to historic levels.

First Majestic (AG) reported March first quarter revenues of $86.1 million after they took the dramatic step of temporarily suspending sales in March as paper prices dropped significantly below true physical prices.

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They postponed the sale of 292,000 ounces of silver and 700 ounces of gold, worth approximately $5.3 million at the end of the quarter. They hold 1,045,342 ounces of silver and 1,459 ounces of gold in inventory to wait for higher prices. Good for them!

They had pro-forma earnings of four cents a share and cash flow of 11¢ a share. They reduced cash costs by 19% to $5.16 per payable silver ounce with all-in sustaining costs of $12.99 per payable silver ounce, beating their previously suspended cost guidance.

Management said they have started a NAFTA arbitration process against Mexico for violating international law on resolving the tax dispute they inherited from Primero. They said their Mexican mines will be back to full production by early July. They will come out of this year as the leading silver miner.

silver

During the quarter they bought back 275,000 shares at CDN$8.56 per share and ended the quarter with $145.2 million in cash. AG is a Buy under $10 for a $16 target price as production increases and the price of silver rises. The primary risk for these shares is if prices of precious metals fall due to US dollar strength.

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