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Kerrisdale shorts First Majestic (AG) (

First Majestic Silver Corp. is, in the words of its founder and CEO, “the purest silver company in the world,” with six operating mines and a handful of development projects, all located in Mexico. Like any miner, First Majestic has seen its market value fluctuate in sympathy with the price of its key commodity; from the peak of the silver market in 2011 to its recent low point, for instance, First Majestic declined 90%. As precious-metal prices have rebounded, however, First Majestic has gotten a new lease on life, rising 268% year-to-date – an increase eight times larger than that of silver itself.

This speculative frenzy – exacerbated by an ongoing, company-funded stock-promotion campaign – has gone too far: First Majestic’s valuation is now outrageously detached from reality. We estimate that the company trades at 5x net asset value (NAV) – an astonishing premium to peers and a gross violation of common sense. While the market prices other precious-metals miners at just 17% of the spot value of their measured and indicated mineral resources – gold and silver in the ground that still need to be extracted, processed, and sold over many years, justifying a large discount – First Majestic trades at a whopping 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 to 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.

Indeed, as First Majestic has surged higher, even sell-side analysts with bullish views on the price of silver and the prospects of the silver-mining industry have expressed bafflement over its valuation. Among the eight firms covering the company, not a single one believes it’s trading anywhere close to NAV. But First Majestic has benefited from less sober investors seeking the cleanest “play” on a silver bull market and buying at any price.

Contributing to the hype is First Majestic’s CEO, a former stock promoter who describes himself as a “high-level visionary” and for years has predicted – incorrectly – that silver would soon trade for over $100 per ounce (up from ~$19 currently). He has also opined that “the financial crisis of 2008-2009 was completely orchestrated and…known by the insiders” (as a way for banks to buy cheap real estate in “probably the largest theft in human history”) and contended that “if we actually do see negative interest rates in North America…we’re going to see riots." While he argues that current precious-metal prices are unsustainably low as a result of “paper manipulation” by a conspiracy of big banks, what’s really unsustainable is First Majestic’s anomalously high share price, which we believe has 70-80% downside.

IKN back. That Keith Neumeyer's wholly incorrect views on the price of silver be given a wider airing is a good thing and that his Emperor's New Clothes empire gets deserved scrutiny is also a positive, but there is something I find strange about all this. What I find funny: Kerrisdale (the people who shorted Silvercorp (SVM)...remember that one?) go after Keith's mothership when the really obvious bloated turd is his Mini-Me company, First Mining (FF.v). Mind you, very tough to get a borrow on that one (one of the reasons its share price has gone so stupidly high).

PS: And by the way, that Kerrisdale report is a pretty decent read. Go get yours.