More matter with less art

First Majestic (FR.to) (AG) 4q14 results (updated)

Right here. The bullets are…

Q4 Highlights
  • Silver equivalent production of 4.2 million ounces, representing a 24% increase compared Q4 2013.
  • Silver production of 3.1 million ounces, representing a 12% increase compared to Q4 2013.
  • All-in Sustaining costs of $14.43 per payable silver ounce, representing a significant 27% reduction compared to the prior quarter.
  • Revenues after smelting and refining costs amounted to $72.5 million, representing a 23% increase compared to Q4 2013.
  • Adjusted net earnings (non-GAAP) normalized for non-cash items was $4.2 million or $0.04 per share.
  • Cash flow from operations of $21.1 million or $0.18 per share (non-GAAP).
  • Non-cash impairment charge of $102.0 million related to certain non-current assets at specific mines resulting in a net loss of $64.6 million in Q4 2014.

$102m impairment…frankly it could have been worse.

More thoughts:

  • Working cap is tighter than I expected. They say they’re addressing this, which is good because they darned well need to.
  • The more I look at the $102m write down, the less it worries me. Overall book value is now more reasonable compared to operations.
  • For the Q4 quarter’s operations, revenues at $72.5m were slightly lighter than expected, cash flow was fine, but mine operating earnings was thinner than expected. The deprec/deplet/amort line item came in higher than my model (which means my model was stupid, not that FR was bad). Overall I’m ok with the Q4 operations because cash costs are obviously dropping (at last) and cash flow was strong enough. 
  • Costs guidance for 2015 is good, with AISC forecast between $13.96 and $15.48 per ounce. Then again, FR.to couldn’t keep to its costs guidance in 2014. They said it’d be $15.87 to $16.69, it turned out to be $17.71.
Bottom line: I keep coming back to that initial reaction on seeing the news release numbers and before opening the Reg Fs: “could have been worse”. It looks like the quarter when FR.to stops turning the corner and actually turned the corner instead of promising to without fully achieving it. The main concerns are 1) working cap position needs to improve as there’s nothing big on the current liabilities side that can be booted forward and 2) production guidance for 2015 is a little less than I’d imagined (not mountains less, just a little), which means it’ll need to mine what it mines efficiently. 
Notwithstanding gold’s move under $1.2k this morning and what that does to the sector in general, the market shouldn’t punish FR.to for these numbers, they’re ok. If you’re in, hold.

UPDATE 2, half an hour after the opening bell: Your humble scribe notices that the US listed stock AG was sold down at the open to U$5.27 before immediately bouncing back (currently trading at U$5.47 and 48). Without putting too fine a point on it, that’s exactly why we run these pre-open snap looks at company financial reports. Opportunity knocks.

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