FR.TO - First Majestic CEO sees his company as takeover target
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Thu, Mar 3 2011
* Plans to double production by 2014
* Sees itself a good target for majors
* To spend $10 million on exploration in 2011
* CEO Neumeyer sees spot silver over $100 within 2 years (In U.S. dollars)
By Julie Gordon
TORONTO, March 3 (Reuters) - With silver prices at 31-year highs, and top producers lowering their production forecasts, First Majestic Silver's (FR.TO: Quote, Profile, Research, Stock Buzz) CEO sees his growing company as a prime target for a takeout bid.
"I can't believe it hasn't happened yet," said Chief Executive Keith Neumeyer. "If you look at some of the bigger companies out there and the pressure to grow their production, it's surprising."
First Majestic will double its production to 16 million ounces of silver over the next three years, Neumeyer said in an interview with Reuters ahead of Toronto's PDAC prospectors and developers convention. That could make the company a hot acquisition target for a larger producer in need of replacement ounces, he said.
PDAC, opening Sunday, will bring together hundreds of small miners, industry giants and financiers at a time when metal prices are surging to record highs.
This week, spot silver prices climbed to a 31-year high at $34.96 an ounce, as uncertainty over the Libyan conflict drove investors into precious metals.
At the same time, Hecla Mining (HL.N: Quote, Profile, Research, Stock Buzz) and Pan American Silver (PAA.TO: Quote, Profile, Research, Stock Buzz) -- two relatively large producers -- announced lower silver production forecasts for 2011.
"I don't know what goes on in the board rooms of the majors," said Neumeyer. "I think they're off track based on their activities over the last couple of years." ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For price charts: r.reuters.com/myp67r For more stories related to PDAC: [nN02153893] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
First Majestic's valuation is one factor that may have discouraged a takeover bid so far. Its shares have quadrupled in the past 12 months.
The Vancouver-based miner, which operates entirely in Mexico, owns three mines and has two development projects, and boasts 93 percent of its revenues from silver production.
The company has no plans to diversify into other metals.
"We formed a silver company on purpose to be in the silver space," said Neumeyer, who was the founding president of base metal miner First Quantum Minerals (FM.TO: Quote, Profile, Research, Stock Buzz). "Our whole focus is to remain as pure as possible in the silver space."
SILVER BULL
On top of being a pure-play silver producer, First Majestic remains completely unhedged, even with spot silver soaring more than 80 percent in 2010.
"I'm a bull on silver," said Neumeyer. "I'm not going to be hedging silver at $35 because I think we're going to have plus $100 prices on silver."
With plans to start up the Del Toro project in 2012, and an expansion underway to double silver output at the La Parrilla mine that same year, the company is well positioned to reap the benefits if silver prices keep rising.
But along with higher metal prices, come higher costs.
First Majestic's direct cash costs have risen because the Mexican peso has appreciated compared to the U.S. dollar. Neumeyer added that chemical, power, labor and equipment costs are also climbing.
"But the price of the metal has gone up substantially," he said, adding that with direct cash costs around $8.00 an ounce and spot silver above $30.00 an ounce, there is a "substantial buffer."
First Majestic will spend about $76 million on expansion and development in 2011, including $10 million earmarked to restart an exploration program shuttered during the economic downturn in 2008.
While Neumeyer noted he is always on the lookout for acquisition opportunities, he said the company is focused on internal growth.
"It really makes a lot more sense to just develop our current projects," he said. "And if we're lucky and discover something major -- that could also give us a boost in production going forward." (Reporting by Julie Gordon; Editing by Frank McGurty)
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