Silver is a strategic metal, and with mounting industrial demand it’s only a matter of time before previous all-time highs are met, and then a new push to triple digits is on the way, said Keith Neumeyer, CEO of First Majestic Silver.“Silver is the only commodity that is not reaching its [historic] highs, and it has reached [those highs] on two separate occasions, back in 1980 and 2011. I think we’re going to see that high breached in the cycle, and when it does, it’s going to wake up the market. Once it breaks through the $50 level, I think that it’s going to get up to the $100 level pretty quickly,” Neumeyer told David Lin, anchor for Kitco News.
Keith Neumeyer CEO of first majestic silver is here with us to discuss the silver market and updates on his company. Keith is a very esteemed and renowned named in the silver space. And it's an honor to have you here talking about the space today with us. Thank you for coming on the show. Keith, a great opportunity to talk about silver on such a positive day in the market.
Absolutely positive day, the markets. And we'll be talking about the silver market and a little more detailed, but first let's talk about your recent acquisition of Jared Canyon. So this is you were talking to me offline a little bit in the pivot in terms of your overall strategy. For first majestic silver, you're adding a little more gold to your production.
Tell us about the acquisition and your broader strategy. You know, we've been actively pursuing a number of, uh, M and a opportunities for the last, you know, 19 years, uh, that that's how I built the business, um, uh, you know, through acquisitions. And then we've been in Mexico now for the, the life of the business, which as I just said, 19 years, and it's our first, um, investment outside of Mexico.
No, we looked around the world looking for, you know, silver centric assets. And they're just simply very hard to find this asset in Nevada. You know, despite it being a hundred percent gold for us, it's got enormous upside into our portfolio. It's going to give us, um, uh, more gold of course, but, um, you know, that's not a bad thing.
We're still. More silver than gold. Uh, you know, we hope that, um, our strategy will, will develop into, you know, remaining, uh, a silver company. Of course, you know, our, our, our next acquisition would be interesting to see what that looks like. But, um, you know, there's chair Canyon just has everything. It's, uh, it's got growth.
It's got expansion has got the wife of mine resources, big land package. You're a great jurisdiction, young Nevada being one of the best mining jurisdiction in the world. So we're just happy to be there and happy to put this acid into our portfolio. Okay. So let's look at your, um, uh, latest quarterly results.
Now you had a hundred, a hundred million dollars in top line revenue from the first quarter of 2021, which is up significantly from. About 80, uh, 80 something million dollars last year of the same quarter. So, uh, it seems to me like production is picking up after COVID. Is that correct? To assume? Well, mostly that is price, um, production analysis, actually a little bit lower than, than, uh, the previous quarter.
And that's, you know, usually core fourth quarters generally. And in the mining sector, at least as far as I've experienced in my career at fourth quarters are generally the best quarter. And first quarters are generally this office. I think that's exactly what happened. And, uh, you know, we're, we're looking like we're having a pretty good second quarter or Kenyon on top of that, you know, it's probably gonna be a record quarter on the revenue basis.
Assuming metal prices stay where they are even go higher as they currently are today. Okay, perfect. And let's talk about your strategy now with, uh, expanding more into gold, which ties into your acquisition. Uh, generally speaking, why are you thinking of doing this? It wasn't intentional. Uh, and, and, uh, you will look, we know.
Of course I'm in, in close relationships with our shareholder base. We know why they own first majestic because of the silver nature of the business. And it's something that is dear to me. Um, you know, I love golden. Buh-bye quite honestly like silver more, uh, I think silver will outperform gold in this cycle that we're currently in and, uh, you know, over the next five years, you know, you've heard me on record I'm number of times, you know, talking electrical digit silver.
So. No, we're actively pursuing silver mines around the planet, but silver reminds me just generally very difficult to find good ones. And, uh, I, if we find one, then hopefully the stars align. But, um, this particular acquisition, despite it being a hundred percent gold, it just fit all the criteria. As I said earlier, Okay, I'm looking at your share price over the last year.
So last trailing 12 months, the share price of, uh, first majestic has outperformed, uh, the silver price. So the company stock is up about 97%. You're on here over the last 12 months while silver is up about 80 something percent, generally speaking for a new investor coming into the space. If you were to explain to them why.
The company tends to outperform on the upside and perhaps, uh, fall down more on the, on the downside. Basically. Why is your beta higher? How would you, how would you make that explanation? Oh, isn't that the reason why people buy mining stocks in the first place? Um, you know, if, if, if, if there was no beta, then why buy a miner?
You might as well just go buy physical metal. Um, the whole beauty of buying a good quality mining stock. Uh, it doesn't matter if it's silver or whatever, any metal, uh, that mining company it shares, um, uh, should outperform the metal. Uh, and then generally speaking, they do it. If you go back to the history of first majestic, there's been many times where that has been proven.
True. Uh, and when silver starts to move, you know, the money starts flowing this sector and it's a tiny sector. And, uh, you know, first majestic is one of the leaders in the space. You know, a lot of investment capital tends to come our way, which affects the share price, which is obviously a good thing. Okay.
So let's talk about the silver market that over the last year, again, significant run-up in the silver price gold as well. Although both metals have tapered off a little bit since its highs. What was your reaction initially when you saw the price run up to, um, or for golden, at least for gold to historic levels, did it change your production plans at all?
Did you, did you reallocate resources to capture higher share price? Uh, silver and gold prices? What did you do? Well, first off I said to myself, it's about time. Um, you know, has been, uh, you know, we went through a pretty difficult period, you know, from 2012 to 2017, 2016. And then we had a bit of a pause and 2017, 2018 and things were zoomed again in 2019.
So, you know, being an investor in this space is not exactly been easy over the last, you know, five, six, seven years, um, as an executive team, you know, it's just as challenging because we. I put by just together at certain malware prices. And we anticipate, you know, getting those revenues into the door so we can make the necessary investments to expand the business.
And when the prices don't perform, then we have to cut back our investments. And that often includes, you know, um, uh, layoffs or it could include canceling or postponing projects and all these kinds of things, or start and stop. Um, Type of activity that the miners are forced into sometimes do add to costs, um, because there's expense, it's expensive to do that.
So we have to try to remain conservative as best as possible in order not to, you know, go crazy on the cap X side, just because we see higher metal prices. Because even though despite. No fact that I think, you know, we're going to see triple digit silver. You know, we are running up, you know, large, publicly traded company and it is our shareholders money.
You know, we have to be somewhat conservative over to point capital, but, um, you know, we are expanding, um, Santillana right now with your Mustang project coming online, there's investment going into expiration. Uh, uh, so we're very focused on resource development, life of mine expansion. And now with Sandra Kenyan coming into the picture, you know, same kind of strategy is going to be employed there quickly.
Now, uh, on your strategy MNA, you talked about not deploying too much capital on the cap ex from when prices went up. What about M and a does that, uh, do you have the same, do you have to maintain the same discipline when, uh, when you've got more capital cash flow coming in and it's just tempting to buy up a company, how do you, how do you interpret that?
Well, first off we're all humans. And, uh, um, you know, when, when price rises, greed rises. So, so it takes two to tango. It takes two groups to say yes to a transaction. And then often when, you know, prices are running, as we've seen that they've done over the last couple of years, you know, the sellers tend to shy away a little bit, and it's more challenging for the virus to do deals.
Um, so M and a transactions do definitely slow down the other hindrance to M and a is, as I've said this before is the lack of conferences, um, you know, mining car, which is whereby you know, the executives of all these mining companies are, you know, have a chance to see each other face to face and actually talk about, you know, deals and what things look like in the future.
And, uh, uh, that really helped. Soar has helped historically M and a transactions. And without those conferences, I think that's also having a negative impact on M and a activity. Let's talk about, uh, your triple digit silver call. Now you've been on their show in the past before talking about this, uh, talking about this.
Longer term outlook. Um, and let's, let's break down the fundamentals here and talk to us about how the market could get there. Let's start with the industrial component. And before we move on to the investment demand component, silver is in a unique position where you've got both components to consider.
So what are some of the industrial applications today that you're looking now for that could potentially drive up demand? Well, you know, everyone that's listening to this podcast or this interview knows, you know, my, my spiel and my, my Polish comments regarding the metal. Um, you know, I look at Silver's there as a strategic metal, not so much as a precious metal, despite the fact that is precious, um, you know, going to the precious storing for a sec.
Um, in 2020 for everyone else, a goal of mine worldwide, there was only seven ounces of silver line, which is a pretty shocking number considering we're trading at something in the order of 70 to one in the financial markets. Just that now on a pure demand side, you know, when it comes to whether it's the green deal or whether it's just the electrification of the planet or what have you, you know, you look at copper prices, you look at commodities.
Solar is really the only commodity that's not really reaching. Um, it's high highs that it has reached out on two separate occasions back in 1980, and then maybe in 2011. I think we're going to see that high breached in this cycle. And when it does, it's going to wake up the market. And that's why I think it's, once it breaks through the $50 level, I think that it's going to get up to the a hundred dollar level pretty quickly.
Um, you know, it might bounce around 70 or 80, but who knows? Um, you know, I think those are the kinds of numbers, you know, you know, copper, copper grow to grow through 10,000 pounds. Yesterday, you know, oil's on his way back to a hundred dollars a barrel. And, uh, you know, we're getting into a pretty inflationary time.
And also you add the actual supply deficits on top of that was silver. You got a perfect storm, you know, just in the making, in my opinion. Okay. So let's talk about that in just a bit, the strategic metal aspect that you brought up, that's a good point. Are you not concerned that should silver one day breach a hundred dollars an ounce in the triple digits?
Maybe there's going to be thrifting in the industry. People are going to use less silver. Would that be a problem? Well, you know, if you go to our website, you'll see, there's no substitute for silver now, you know, If you go back 20 years and look at solar panels today, there's less that were being used in solar panels due to efficiencies in the technology.
So, you know, there are companies who DuPont's, who produce this material for the solar panels, you know, have they been able to reduce the amount of solar used. And also at the same time have the same power density. Um, there's a limit to that and it's likely reached now. So whether the solar panel industry can actually reduce silvery will further.
There's a lot of doubt around that. Uh, you know, you, you could go to a very cheap solar panel, but the efficiencies are going to drop below 25%. And then the solar panel itself is almost uneconomic. Bothered buying it in the first place. Um, you know, other technologies like electric cars, you know, that's not going backwards.
I don't think, I think everyone listening to this would agree that the future is electric and then probably after that fuel cells. But, uh, you know, that's probably on the road, but, um, uh, you know, the next big move is going to be electric cars. I'm asking you to be a huge consumer. So silver. Okay, let's take a look at some of the, um, investment components for silver.
Now I have a few charts from the, uh, silver Institute, and this is an interesting table that they've showed in their latest report that came out two weeks ago, silver supply and demand. They're actually reporting a net net positive balance. So a surplus in 2020. Um, but if you, if you look at the way that is actually, if you are, so you see the market balanced last ETPs.
Um, there's either actually showing a deficit of 251 million ounces. Uh, so, you know, I saw a Kinko's headline a couple of weeks ago and it's completely offside. Whoever wrote that article, unfortunately, didn't read this data, but ETPs shouldn't be on the demand side. Because they think about this for a sec, and this is why I'm, I've become against metals focused and, uh, GFMS and metals focus are the two primary data collection services on the planet who put this nonsense out of the marketplace.
GFMS is owned by BlackRock. Uh, which in itself I'm surprised irregular there's even like BlackRock on one of the most important news dissemination services for the metal sector on the planet. Metal smokers is a spinoff from GFMS. They use exactly the same methodology as GFMS does. And if you look at this detail, you look at our recycling, for example, at 182 million analysis.
I'm really curious how they actually come up with that number because most of the recycling actually comes from, um, refineries and smelters. Um, and uh, most of them are private privately owned and they don't report. So finding recycling data is, is very, very difficult. Uh, net hedging supply. That's a paper transaction.
So why would you have a hedge is part of your supply. Right. When that metal comes to market, I would, yes, I would agree. Uh, it should be supply, but it's paper. So why are you including paper in your supply? Uh, calculation the flip side to that. If you're going to include the hedge on the sell side. So that hedge is a mining company selling metal into the future, right?
Um, through a paper contract, not yet delivered if you're an institution and you want to short the metal. Uh, when we all know there's a very large, short position on the Comax that is future demand. So if you have 300 million ounces short on the Comax, you should have demand there a 300 million ounce hedge, right.
Because that's your paper hedge. So you got papers to the lot supply showing, but no flip side to that trade showing. So right there, these numbers being nothing. Um, you look at, uh, jewelry at one 48. I was quite shocked with that because online sales are exploded in 2020 due to COVID. And, uh, I'm curious why they're suggesting that jewelry's, uh, uh, demand dropped, you know, uh, that just makes zero sense to me, silverware dropping by 48%.
I'm not even sure how they come up with that again, you know, online sales are exposures. So why was silverware dropped in 2020, um, net physical investment? We know 200 million ounces, net physical investment compared to 185 million the year before that is nonsensical. You know, our, why our website was wiped out of all its silver in a matter of days.
And uh, I know that, um, the, uh, the whole space, cause we're, we're scrambling to fill our warehouse up again with physical metal and everyone else in the world. Cause I talked to people in Europe and the United States. I figured a regular basis that are very close to this market and they can sober. Um, and as far as I know, and what I've been told by people very close to this sector, that physical silver demand, um, uh, was the highest in known history in 2020.
And they only show a 15 million ounce increase year over year, which in itself makes no sense. So, you know, I think these numbers are made up. Um, I don't trust them. Uh, Uh, I wouldn't rely on these numbers at all. Okay. Fair enough. So I think what the reporting now is the 80 million ounces, right? The surplus, which they have reported as the biggest surplus in their recorded history in the, since they've started recording data, but then once you break it down, once you go down the ledger, it says here you're detracting net investments in ETP.
So exchange traded products, and that becomes a deficit. So you're saying that number should be subtracted. You, you should take into account that adjustment. That's assuming the 331 million ounces is correct. And I don't know, I'm assuming it's correct or not. That should be in the demand line. That should be moved up.
So we have, you know, when you're, when you're trying to figure out supply to man, why would you have a line item called market balance? We always say it's a park. Uh, and, and, uh, uh, you know, I've said to members of the silver Institute, many times that most of these numbers are just simply plugs, uh, for the most part they're meaningless ma maybe the, uh, maybe the, not counting the ETPs because it's not, uh, well, they're, they're, they're exchange traded products.
They're not physical silver. Right. So they're not as physical silver demand. I'm just guessing. Right, but they're showing hedging, which is, which has paid for as well. Right. Well, it's good to clarify that, uh, Keith let's move. I have two more charts from the report that I'd like you to clarify on. Uh, so while this is really the same thing just in graphical format.
So again, it's showing that, uh, there's, uh, more or less a surplus here going on. Um, it broken down into a graph. This is interesting. This is investors positions on, on, on the Comax here. So it's showing. Um, it's showing a spike in demand in late 2020, but that's it's since come down from, uh, um, from its, uh, from its local peak.
There is that, is that more or less in line with what you've observed, Keith? You know, I don't follow the, really the, the, the Colmex positions that closely. I read probably the same stuff you can read. Um, so it was kind of hard for me to comment on this. I, you know, I'm more familiar with the actual physical flows, uh, versus paper flows.
Okay. So, so let's assume that, uh, let's, let's go with your, uh, the data that you've observed and say that there is indeed a deficit in the physical market and that, uh, the numbers that they've reported can be disputed. Uh, what does this deficit mean for the price of silver going into potentially the next year?
Well, look, the, the, um, Yeah, the guy that runs the CFTC just recently in an interview said they were successfully able to cap the market when it ran up to $30 an hour, pretty shocking statement from some of the who runs, uh, you know, the exchange, you know, nevertheless. So the, the, there is definitely, um, efforts to, you know, keep these markets kind of at Bay.
You know, whether it's a silver or gold market, uh, you know, we, um, uh, you know, I, I'm a big believer in, you know, physical demand will ultimately, um, uh, you know, break the stranglehold on these, these paper markets and, uh, uh, you know, that's what I advocate people do. And, uh, and, uh, I suggest people continue to do that.
Uh, can you just clarify what you mean by break the stranglehold? So what, what exactly is that referring to Keith? Well, you know, these, you know, so are prices. That's what we're talking about today. I've been caught in this trading range for, for 30 years. Uh, um, you know, when I say trading range, I mean trading ratio and, and, you know, you get used to that and the banks get used to that.
And, uh, uh, you know, when, when it gets, you know, you know, at the top end of that range, they may decide to take on a bigger position when it gets on the lower side of that range. Maybe they do some other trading. No, I don't work in the banks anymore, but I kind of know how things work, but, um, you know, when you're Sony or, or, or, uh, you know, or Tesla or Apple, and then, you know, you you're, you just give given, you know, one of the banks, so big order for silver and you need it delivered to various ports around the world for you to be able to manufacture your products.
And all of a sudden, one of the banks can't deliver it to you. Um, No, because of the physical metals, just simply not there. Um, you know, that's where I think we're headed. And, uh, I think it's going to be the retail investor who's going to cause the biggest issue for that event to occur because, you know, we do have a new buyer in the market that wasn't there a couple of years ago, you know, since I put first and Jesse together 19 years ago, you know, there's been pretty much, you know, the same buyer, um, uh, in this market and, um, And the banks are pretty familiar with the commercial demand.
Um, you know, they obviously monitor that pretty closely what they don't monitor and can control is their retail demand. And that's my point. I think it's going to be retail a man, and we saw glimpses of that in the Reddit crowd, um, that, that occurred recently. And I think that momentum is going to continue our sales, our website just don't stop.
We cannot get it up. Into our warehouse to fill it in a band. Uh, we, we could probably sell at least five times our current volume. Um, and that's a bit of a guess on my part, but, um, uh, if we had the, uh, metal in it in inventory today, do you have an estimate and maybe have you thought about how many ounces or millions of ounces of physical silver that going to the retail investment style that the retail investors need to buy and take off the market before the price?
Moves up to break the stranglehold, like you said, basically how much more do we have to build? Yeah, it's a bit of a guessing game, of course, but, um, the retail component of silver demand over the last 20 years fluctuates between 10 to 20%. Um, and that's kind of been the norm, you know, but you know, in 2014, 2015, you know, the, the retail guys that are in this market, couldn't give silver away.
There was virtually no to man. So it was down around the 10% range today. Um, we can't get enough silver to supply to the retail space. I don't know what those numbers are because they're not reported. And I said earlier that all the men stall the, uh, retail sellers of products. Um, you know, even Kitco curious where the kid coat announces how much silver goes through their website every year, because for the most part.
Most people in this business do not report their sales publicly. Um, and the, the refineries that mans keep this information very close to themselves. And that's why I questioned a lot of this data that gets put out by these new services, because I'm curious how they find it. Cause I've been in this business for 19 years and it's difficult.
I, I I've had. You know, meetings with a lot of these guys that run these shops and they won't tell you what they sell. So I'm curious how that these groups get that data. But nevertheless, go ahead. Sorry. It is curious to me when I, when I observed that data that I presented to you, that they reported a, a surplus in the physical market space.
Yet, according to you and some other retail investors, there seems to be a shortage of physical silver bars and coins. Uh, gold as well to a certain extent, but less so. Um, and so I, I'm curious as to where the discrepancy comes from, how can there be a surplus in the physical space yet, a deficit and shortage in the physical coins and Mark bars markets.
Can you, can you explain that discrepancy if there even is one? Sure. Well, that's a fabrication issue for one, um, you know, a couple of the big bins and, and, uh, Refineries have gone bankrupt over the last couple of years because they're just so little business. So it's hard for these mans to actually meet the demand.
But it's also another issue, you know, a thousand hours bars, which are the commercial, um, Material that gets delivered into industry, um, are the priority of the system. You know, those bars need to get into industry to produce products. So the banks will push their cause they have commitments to get this metal to the industry.
So they push that metal. So the retail investor is really last in line. So it, it, it takes a lot of effort for some of these mens to actually go and source out thousand ounce bars to, to, to break them down into retail products. And, uh, you know, I know for a fact, because I've seen photographs of silver bars arriving at some of the mints, uh, where these bars are coming from, they're coming from places like Cassick Stan, uh, it was parts of Asia.
Now, these are old bars that aren't coming from traditional sources that traditional sources have no silver period. So there's, there's a supply chain bottlenecks. So you're saying that needs to be fixed before the retailers can buy physical silver in enough quantity to move the market. Is that, is that the summary here?
Well, we're already seeing it to some degree. I think, you know, the, the, um, That the premiums that we're seeing appeal five to $7, which is pretty historic. Um, I don't recall ever seeing premiums as we're currently seeing today, um, that is driving a demand to the, the paper markets, uh, uh, because of the discrepancy in price.
So I think there are more and more people coming into the paper markets, and we're seeing that in SIL, um, you know, which is pretty well at paper. They don't really. Physical, they buy paper. Um, and, and that they've been, you know, obviously adding a lot of paper ounces to their, their ETF. We've got the PSLV, which, you know, is a physical, um, uh, fund, which has also been adding significant houses there.
So we are seeing it there, you know, if the premiums continue to be where they are today, which I'm pretty sure they will. Cause I have no, um, Knowledge of any kind of major supply coming to the market to change the current dynamics. Um, the premiums will drive out the paper price in my view. Okay.
Excellent. Keith wonderful overview of the silver market. It's great to hear it directly from a miner and, uh, it's always good to have you on, I hope to have an update from you, uh, next quarter when your next quarterly results come in. Thank you very much. Okay, and thank you for watching Kichler news. I'm David Lynn.
Stay tuned for more. .