![]() Let's look at what went wrong, how we got here, and if there's still a future for this asset. Unfortunately, several issues have occurred following the acquisition. The thinking was that with the mine running at barely half its capacity of 4,500 tons per day (permitted for operating at 6,000 tons per day), economies of scale could drive down costs, and there were multiple mines that once in production would help lift output to take advantage of this excess processing capacity. In Jerritt Canyon's case, First Majestic was taking a gamble at the onset, given that this was an operation that most recently operated at cash costs of $1,289/oz in 2020, ~60% above the industry average in FY2020 (~$800/oz). Jerritt Canyon Operations (Company Website) However, while the deal might have made sense of a sum-of-parts-valuation (roaster + reserves for expensive First Majestic shares) and certainly looked cheap compared to prices paid for Tier-1 developers, the difference was that these assets could work even in a sub $1,400/oz gold price environment with them being relatively straightforward and benefiting from above-average grades (high-grade future oxide mine in Nevada and high-grade future open-pit mine in Ontario). This is especially true if we factor in that the company was selling over-inflated First Majestic shares to pick up this asset. Given that the Jerritt Canyon Mine produced ~135,000 ounces of gold per annum under its previous operator (Jerritt Canyon Gold LLC), there were ~700,000 ounces of gold in reserves, and the replacement cost for a roaster in Nevada was easily $1.0+ billion, it may have appeared like they were getting a tremendous deal. Just two years after the acquisition announcement, First Majestic has announced it will be temporarily suspending operations at Jerritt Canyon, an asset that contributed a significant 21% to FY2022 revenue even in a tough year for the asset. This is because the company was paying $470 million (~26.7 million in shares) for a mine where grades were steadily declining and one that was passed among several operators, including Meridian and Freeport ( FCX ), Minorco, AngloGold ( AU ), Veris, and Jerritt Canyon Gold LLC (subsidiary of Sprott Mining) who scooped up the project after a Canadian bankruptcy court ordered Veris to sell its assets. Just over 18 months ago, I wrote about First Majestic Silver ( NYSE: AG), noting that the company appeared to be paying a lofty price to diversify away from Mexico (and into Nevada) with its Jerritt Canyon acquisition. Guidance for the year was narrowed to 32.5 to 34.6 million AgEq ounces.Sviatlana Barchan/iStock via Getty Images In addition, AISC are expected to be within a range of $16.09 to $17.27 per AgEq ounce in the second half of 2022. ![]() The company said that cash costs in the second half of 2022 are expected to trend lower to within the range of $12.09 to $12.85 per AgEq ounce, primarily due to higher gold production at both Santa Elena and Jerritt Canyon. As a result of these production improvements, costs at Jerritt Canyon are projected to drop significantly over the next two quarters." These two mines, in addition to operational improvements at SSX, are expected to nearly double the amount of fresh ore feed to the plant in addition to increasing the average head grades. At Jerritt Canyon, we successfully restarted the West Generator mine and expect to bring Saval II into production by October. This increase in production is being propelled by significant growth at both the Santa Elena and Jerritt Canyon operations. "In the second half of 2022, we anticipate a further 25% production increase in our total silver equivalent ounces. "In the second quarter we saw strong production of 7.7 million silver equivalent ounces, a 20% increase year-over-year," said Keith Neumeyer, President and CEO. The company said that the decrease was primarily due to a major failure in the oxygen plant to produce liquid oxygen which significantly reduced roasting capacity over a two-week period in May. Jerritt disappointed, producing 18,632 ounces of gold, a 10% decrease compared to the prior quarter. Gold ounces was up 28% to 58,891 ounces while silver was down 15% to 2.6 million ounces. The company produced 7.7 million silver equivalent ounces representing a 20% increase when compared to the second quarter of 2021 primarily due to the acquisition of Jerritt Canyon and successful ramp up of the ErmitaƱo mine at Santa Elena. ![]() First Majestic Silver (NYSE: AG) announced a 20% year-on-year increase of silver equivalent ounces in its 2Q, which was released today.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |