First Majestic reports 1Q adjusted profit; some silver, gold held to sell at later date
(Kitco News) - First Majestic Silver Corp. (NYSE: AG ;TSX: FR ) posted an adjusted profit in the first quarter, and the company also said it put some gold and silver into inventory with the intention of selling the metal at a later date as prices improve.
Adjusted net earnings for the quarter were listed at $8.2 million, or 4 cents a share, compared to a loss of $2.9 million, or a penny, in the same period a year ago.
Revenues of $86.1 million were 1% lower than $86.8 million in the same quarter a year ago, and the company said this was primarily due to the suspension of sales in March in an attempt to maximize future profits due to metals-market volatility. Gold and silver prices fell sharply with stocks in March as investors had to raise cash, with the COVID-19 pandemic prompting worries about the global economy, but the metals have since bounced.
First Majestic said it postponed the sale of 292,000 ounces of silver and 700 ounces of gold, putting their value at $5.3 million at the end of the first quarter. As of Thursday, the company holds 1,045,342 ounces of silver and 1,459 ounces of gold in inventory.
“As the COVID-19 pandemic sparked higher-than-normal volatility in the metals market near the end of the quarter, we temporarily suspended our silver and gold sales as paper prices dropped significantly below true physical prices,” said Keith Neumeyer, president and chief executive officer. “These inventoried ounces have been carried over into the second quarter and will be sold as prices improve. Nevertheless, strong production from each of our three mines generated operating earnings of $21.1 million, representing a 106% increase over the same quarter of 2019.”
The company listed a first-quarter net loss of $32.4 million, or 15 cents per share. The profit in the same quarter of 2019 was $2.9 million, or a penny. The decrease was attributed to an accounting loss of $10.1 million on the divesting of the Plomosas exploration project, to reduce annual holding costs, and an unrealized loss of $22.7 million on mark-to-market adjustment of its foreign currency derivatives holdings due to a 25% depreciation of the Mexican pesos against the U.S. dollar during the quarter.
Cash flow was 11 cents a share, compared to 12 cents a year ago.
The company last month reported that output in the first quarter was 6.2 million silver-equivalent ounces, compared to 6.3 million in the same quarter of 2019. The January-March results included 3.2 million silver ounces, with the average realized price of silver rising to $17.36 an ounce from $15.73 in the year-ago period.
Output in the second quarter has been impacted by a March 31 Mexican government decree requiring “non-essential” businesses, including mining, to temporarily suspend activities due to the COVID-19 pandemic. This week, the government said mining is now considered “essential” and can restart May 18, First Majestic reported. As a result, the company is beginning restart procedures.
Neumeyer reported that the company has undertaken several measures to prevent a COVID-19 outbreak. So far, there have been no positive cases at the company’s operations.
During the quarter, the company repurchased 275,000 shares at a volume-weighted average price of C$8.56 per share.
Meanwhile, First Majestic announced late Wednesday that it served notice to the Mexican government that it was initiating a process, as allowed by the North American Free Trade Agreement, to resolve disputes over how the company is taxed in the country.
The notice starts a 90-day process for the government to enter into “good faith and amicable negotiations,” First Majestic said.
In a news release, the company accused Mexico’s tax authority, the Servicio de Administracion Tributaria, of a “total disregard for the applicable provisions of three separate double-taxation treaties that it has entered into with Canada, Barbados and Luxembourg, which are relevant to First Majestic and its subsidiaries.”