Kerrisdale declares short position in First Majestic Silver

VANCOUVER (miningweekly.com) – Hedge fund firm Kerrisdale Capital has declared short positions in and own option interests on the stock of Canadian primary silver producer First Majestic Silver.

Kerrisdale on Thursday published a report highlighting its belief that the miner was in a “speculative frenzy” and that the company’s valuation was “outrageously detached from reality”.

The New York-based hedge fund firm argued that First Majestic’s stock price could fall between 70% to 80% from its Thursday opening price of $12.02 apiece.

According to Kerrisdale’s latest 13F filing, its US equity portfolio was worth almost $370-million at the end of June, 36.86% less than it was worth at the end of March. The fund, which has staked its bets on a rebound in the technology sector, struggled during the first half of the year, losing 12.1% during the period, compared with the S&P 500 ending the first half with gains of 3.8%.

Kerrisdale, led by founder and chief investment officer Sahm Adrangi, took issue with the fact that as precious-metal prices have rebounded so far this year, First Majestic’s stock price rose about 268% for the year to date – an increase eight times larger than that of silver itself.

According to the firm, the market prices other precious-metals miners at just 17% of the spot value of their measured and indicated mineral in the ground, while First Majestic trades at 77% of this value.

“Not only is the company ludicrously expensive relative to its peers, it’s also expensive relative to its own history. For example, compared with the last time the price of silver was at its current level, First Majestic’s stock price is now 17% higher – yet its silver reserves per share are now 30% lower,” Kerrisdale stated.

First Majestic did not respond to a request for comment.

A short position is an investment strategy where the investor sells shares of borrowed stock in the open market, with the expectation that the price of the stock will decrease over time, at which point the investor will buy the shares in the open market and return the shares to the broker that it was borrowed from.

First Majestic’s NYSE-listed stock fell nearly 8% to $11.09 apiece in early trading Thursday morning, before recovering some of its losses to close down only 1.91% at $11.79 apiece.

First Majestic Silver had early in August lowered its full-year production guidance by 11% on the back of lower expected throughput rates at its Del Toro and La Guitarra mines, in Mexico.

The company expects to produce between 10.7-million and 11.9-million ounces of silver, or 16.8-million to 18.7-million silver equivalent ounces (SEOs), down from its previous guidance of 12-million to 13.3-million ounces of silver, or 17.8-million to 19.8-million SEOs.