First Majestic shares hammered after reporting $40 million-loss

First Majestic’s La Encantada silver mine is the company’s largest operation in Mexico. (Image: First Majestic Silver Corp.)

Shares in Canada’s First Majestic Silver (NYSE:AG) (TSX:FR) dropped more than 10% in New York and Toronto on Monday after it posted a second-quarter loss of $40 million, compared to a profit in the same period a year earlier.

The Mexico-focused miner said it had a loss of 22 cents on a per-share basis. Adjusted for one-time gains and costs, losses were 7 cents per share.

First Majestic shares dropped 11.6% to Cdn$ 7.60 in Toronto at 9:55 am and 10.65% to $5.79 in New York by 10:29 a.m. So far this year, the stock has declined nearly 4%.

It also recorded an impairment charge of $31.7 million, or $20.5 million net of tax, related to placing its La Guitarra mine on care and maintenance.

There were some good news in today’s results too. Silver production for the April-June period was 2.8 million ounces, a 27% increase compared to the first three months of the year, thanks mainly to the addition of the San Dimas mine to the company’s portfolio.

The silver miner’s revenue for the period stood at $79.7 million, a 36% increase compared to the first quarter of 2018, but logged mine operating losses of $2.3 million compared to earnings of $1.4 million in the second quarter last year.

In May, the company acquired fellow miner Primero Mining (TSX:P), in a cash and stock deal valued at $320 million, including debt.

With the transaction, first announced in January, First Majestic gained the San Dimas silver-gold asset, a large, world-class operation, which is now the company’s seventh mine in Mexico.

As part of the deal, the company restructured a pre-existing purchase agreement with Wheaton Precious Metals Corp (NYSE, TSX: WPM), the world’s largest pure silver and gold streaming company.

Despite the addition of San Dimas, which contributed $5.1 million in mine operating earnings during its 52 days of operations, consolidated mine operating earnings underperformed the previous year due to a decline in production from the Del Toro and La Encantada mines.

First Majestic also recorded an impairment charge of $31.7 million, or $20.5 million net of tax, related to placing the La Guitarra mine on care and maintenance.

Realized average silver price of $16.74 per ounce, relatively consistent with the prior quarter.

The company owns and operates seven silver producing mines in Mexico, including La Encantada, La Parrilla, San Martin, La Guitarra, Del Toro, Santa Elena and the recently acquired San Dimas.

Silver has been caught in a protracted multi-year slump since the end of the precious metals bull market in late 2012. While some are positive on the outlook for the white metal, based partly on ongoing supply deficits, its future remains uncertain.

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