First Majestic Silver (TSX: FR; NYSE: AG) is taking action to reduce overall costs by temporarily suspending all mining activities and reducing its workforce at the Jerritt Canyon gold mine in Nevada, effective immediately.
Shares of First Majestic were down 16.1% in afterhours trading Monday on the latest development, taking the precious metals miner's market value to US$2 billion in New York.
The Jerritt Canyon operation, which comprises a fully permitted processing plant and two producing mines (open pit and underground), was expected to produce between 119,000-133,000 oz. of gold this year.
Over the past 22 months since its acquisition of Jerritt Canyon, the company has been focused on increasing underground mining rates in order to sustainably feed the processing plant at a minimum of 3,000 tonnes per day in order to generate free cash flow.
Despite these efforts, mining rates have remained below this threshold, First Majestic said, and cash costs per ounce have remained higher than anticipated primarily due to ongoing challenges such as contractor inefficiencies and high costs, inflationary cost pressures, lower-than-expected head grades, and multiple extreme weather events affecting northern Nevada, which have compounded conditions and caused material headwinds for the operation.
"The decision to temporarily suspend mining activities at Jerritt Canyon, which represented approximately 21% of the company's 2022 revenue, was driven by our goal to produce profitable ounces across the company," Keith Neumeyer, First Majestic's president and CEO, commented in a news release.
He noted that while mining activities have temporarily stopped, processing of the remaining surface stockpiles will still occur over the next couple of months. During the suspension, the company intends to process approximately 45,000 tonnes of aboveground stockpiles through the plant at Jerritt Canyon.
In addition, Neumeyer said "the company will continue exploring both near-mine and prospective regional greenfield targets to grow Jerritt Canyon's resources, which we believe will significantly enhance the economics for the eventual restart of operations."
Acquired from Sprott Mining in April 2021, the Jerritt Canyon property covers 308.2 sq. km of mining claims in Nevada. The Jerritt Canyon deposit was discovered in 1972, and first gold production occurred from the open pit in 1981, then underground in 1997.
The property contains an estimated 1.6 million oz. of gold in measured and indicated resources (8.6 million tonnes grading 5.84 grams gold per tonne), plus 1.3 million inferred oz. of gold (6.9 million tonnes grading 5.61 grams gold).