Every why hath a wherefore

Mailbag on First Majestic (AG) (FR.to)

Mailbag of the day is from Reader E, who likes playing with numbers as much as I do. He’s quick to point out that this is the most basic of calculations and does not include items such as tax, investments, exploration etc. Also, he’s being very generous to FR by leaving the production un-discounted, at NPV-5% it wouldn’t even make U$600m. But as a ballpark, it does indeed shine a light on the prices people are willing to pay to have something with the word ‘silver’ in its corporate title.

In regards to first majestic (AG), I actually made a funny calculation that exposes the craziness:
Let’s take all of the measured and indicated silver resources of the
company (reserves included of course), from their own website (gold is
included in AISC already so we ignore).
2) Now, let’s assume
that their AISC numbers (which include the gold) really reflect the cost
of taking those ounces of the ground, 
3) and let’s just
assume that they somehow succeed in producing all of their silver and
gold in just one day and sell it immediately. 
the value we get:
M&I silver ounces: 150M 
AISC: $10/oz
at a silver price of $17/oz, and AISC of $10/oz…. we get a value of
150,000,000 ounces X $7 = $1.05B  (remember, I’m not using NPV5 here,
this is just cash flow, for a company that’s traded for $2B).

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