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First Majestic (AG) Inks Deal to Buy Jerritt Canyon Gold Mine

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First Majestic Silver Corp. (AG - Free Report) has entered into an agreement with Sprott Mining Inc. to acquire all the issued and outstanding common shares of Jerritt Canyon Canada Ltd.

Per the deal, Sprott Mining will receive 26,719,727 common shares of First Majestic, representing $470 million of stock consideration along with 5 million First Majestic share purchase warrants at an exercise price of $20 per share for three years. The $470 million share consideration is based on the 20-day trading volume-weighted average price of $17.59 per First Majestic share on the New York Stock Exchange for the period ended on March 11, 2021.

At the same time, Sprott Mining president Eric Sprott will make a private placement of $30 million in First Majestic at a price of $17.59 per share for a total of 1,705,514 common shares. This buyout is likely to close by the end of April.

Jerritt Canyon is the owner and operator of the Jerritt Canyon Gold Mine located in Elko County, NV. Jerritt Canyon has produced more than 9.5 million ounces of gold over the 40-year period of production. This mine currently operates as an underground mine with one of the three permissible gold processing plants in Nevada that uses roasting in its ore treatment.

This processing plant has a production capacity of 4,500 tons per day (tpd) while currently operating at a rate of approximately 2,200 tpd, on average, owing to limited ore production from two underground mines. In 2020, this mine produced gold of 112,749 ounces at a cash cost of $1,289 per ounce.

Along with this gold mine in Nevada and First Majestic's existing three operating silver mines in Mexico, the newly-combined entity will be a foremost silver and gold producer in North America with an expected pro forma annualized attributable production of 30-33 million silver equivalent ounces. Further, First Majestic's strong balance sheet, liquidity position and a diversified portfolio of operating mines are expected to continue generating strong free cash flow.

Notably, the latest buyout enhances First Majestic's geographic operating platform while adding a producing asset in a world-class jurisdiction as Nevada is considered one of the most attractive jurisdictions for mining operations.

Last month, the company reported fourth-quarter 2020 results wherein both adjusted earnings and revenues increased year over year. During 2020, the company produced 20.4 million silver equivalent ounces, consisting of 11.6 million ounces of silver and 100,081 ounces of gold. Silver production of $11.6 million ounces achieved the top-end of the company’s guided range of 11-11.7 million ounces.

The company expects current-year production from its three operating mines between 12.5 million ounces and 13.9 million ounces of silver and gold production between 100,000 ounces and 112,000 ounces. First Majestic expects a 14% increase in silver production from the prior-year level.

Price Performance

First Majestic’s shares have appreciated 206.4% over the past year compared with the industry’s rally of 152.4%.

Zacks Rank & Stocks to Consider

First Majestic currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the basic materials space include Impala Platinum Holdings Limited (IMPUY - Free Report) , Fortescue Metals Group Limited (FSUGY - Free Report) and BHP Group (BHP - Free Report) , all sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Impala Platinum has an expected earnings growth rate of 195.9% for the current fiscal year. The company’s shares have surged 84% in the past year.

Fortescue has a projected earnings growth rate of 84.3% for the current fiscal year. The company’s shares have soared 182% in a year’s time.

BHP Group has an estimated earnings growth rate of 65.6% for the current fiscal year. The company’s shares have appreciated 75% over the past year.

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