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First Majestic Revokes '20 Guidance on Coronavirus Concerns

First Majestic Silver Corp. AG recently announced that it is temporarily suspending operations at all of its three mines in Mexico — San Dimas, Santa Elena and La Encantada, in accordance with Mexico’s Ministry of Health’s Decree to curb the spread of coronavirus. The company stated it cannot ascertain the impact of the suspension at present and consequently revoked its fiscal 2020 production and cost guidance.

Per the Decree issued by Mexico’s Ministry of Health, non-essential businesses (which include mining) have to temporarily suspend activities until Apr 30, 2020. Since the announcement of the Decree on Mar 31, 2020, First Majestic, along with local and state officials, industry task force groups and other mining companies has been trying to convince the Federal Government that silver mining is essential and critical to the medical industry. This is due to silver’s antibacterial properties that are proven to reduce the spread of viruses. Discussions to support silver mining as an essential business continue to be held in Mexico City. However, the Ministry of Health’s has remained firm on its decision.

Meanwhile, in compliance with the Decree, First Majestic is in the process of reducing its workforce on sites and will implement care and maintenance activities during the suspension. Appropriate security and environmental procedures will remain fully functional. The company has already been following several control measures including social distancing, the cancellation of any non-essential visit to the mines, sanitation measures and pre-screening for virus symptoms. Further, access restrictions to limit travel in and out of the local communities have been implemented.

This suspension will impact First Majestic’s production and results this year considering that the company’s operations are focused only in Mexico. In 2019, the company had produced 25.6 million silver equivalent ounces from the San Dimas, Santa Elena and La Encantada mines.

For 2020, the company had projected that the production from San Dimas, Santa Elena and La Encantada mines will be between 11.8 to 13.2 million silver ounces or 21.5 to 24.0 million silver equivalent ounces in 2020. However, this guidance now stands withdrawn.

Another silver miner, Pan American Silver Corp. PAAS announced that it has decided to suspend its La Colorada and Dolores mining operations to comply with Mexico’s Ministry of Health mandate. Newmont Corporation also planned to ramp down operations at Peñasquito mine in Mexico.

Metal producers worldwide are temporarily halting their operations and suspending production as several governments are imposing restrictions to combat the spread of coronavirus. Many countries have imposed travel and border restrictions, and other measures such as constrained movement and quarantines to limit the spread.

Silver prices have slumped 19% so far this year. This decline can primarily be attributed to the coronavirus pandemic, which has disrupted global economic activity consequently weakening consumption of industrial raw materials. The metal’s unrivaled characteristics make it indispensable for many industrial products. In fact, industrial applications account for roughly 60% of the global silver consumption.

So far this year, First Majestic’s shares have fallen 50.6% compared with the industry’s decline of 46.5%.

Zacks Rank & Stocks to Consider

First Majestic currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include DRDGOLD Limited DRD and Franco-Nevada Corporation FNV. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DRDGOLD has an expected earnings growth rate of 562.5% for the current year. The stock has appreciated 14% so far this year.

Franco-Nevada has an expected earnings growth rate of 21.9% for the current year. The company’s shares have been up 5% year to date.

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