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January 9, 2007

By: Don Hansen

SILVERAXIS.com

In this, my third article on the Value Strategy for Investing in Silver Mining Shares,  I will provide detailed information on another company that satisfies the criteria being used for this series: First Majestic Silver. To summarize the criteria, I wanted companies that offer the potential to increase in market value by 3-4 times in the next 12-18 months without a substantial change in the silver price or any major new ore body discoveries. Using this criteria, in October 2006 I identified four currently producing mining companies that qualified. They are all Canadian companies operating in Mexico, and they are all profitable on an operating basis excluding overhead, amortization and exploration expenses.

The four companies are:

First Majestic Silver (FR in Vancouver, FRMSF on Pink Sheets) being featured today.

Endeavour Silver (EDR in Toronto, EDRGF on Pink Sheets) featured in Part 1.

Great Panther Resources (GPR in Toronto, GPRLF on Pink Sheets) featured in Part 2.

Impact Silver (IPT in Vancouver, ISVLF on Pink Sheets) to be featured in Part 4.

First Majestic Silver

In this installment, I will present the fundamentals on the recently renamed First Majestic Silver (formerly First Majestic Resources). The historical data and forecasts shown were obtained by and through personal interviews with company management, company publications, the Internet, and annual reports. All dollar amounts are in US$ millions unless otherwise noted.

*   Due to the acquisitions during 2006, this number does not appear in the company's financial statements; however, the number represents the proforma ounces of silver produced in 2006 from the three producing mines owned as of year-end.

** Management of First Majestic Silver provided me with their estimate of total expenses rather than mine operating expenses used in my presentations for Endeavour Silver and Great Panther in the two previous installments of this series. Therefore, pre-tax profit instead of mine operating profit is used above. Accordingly, I adjusted the market multiple up to 18x from 15x to make my estimate of market value comparable to what was presented previously.

I would like to point out once again that the Possible Market Value Dec. 2007 shown is the average of the 2007 and 2008 calculated market values, which is the same method I have used throughout this series. Please see the prior installments for further explanation of my methodology.

Other factors which make, in my own opinion, First Majestic Silver a good investment now include the following:

• The $19 million in cash on hand is much higher as a percentage of current market value than for many other miners, especially when compared to what funding is required to produce the projected output. This means limited dilution beyond the exercise of some warrants in the next two years and the potential to make acquisitions of new projects without dramatic dilution. The above figures include the effect of recent acquisitions and the private placement which closed in November 2006.

• The company expects to be traded on the Toronto exchange in early 2007 and is reviewing an AMEX listing in the US. Both listings should give a boost to the share price, increase liquidity and trading volume, and attract more institutional and retail investors in both Canada and the US.

• The company is extremely well connected and very respected in Mexico, hence the success in its most recent acquisitions. These relationships are anticipated to continue to assist First Majestic Silver in its aggressive growth strategy.

• The management team consists of senior mining professionals from Pan American, Hecla, Grupo Mexico, Penoles and Luismin (now Goldcorp.). Total staff at First Majestic Silver is more than 850 personnel, mostly in Mexico.

• Resources (which include reserves) are at 60 million ounces of silver and on target for 200 million ounces by the end of 2007. First Majestic presently has 12 drill rigs operating and developing resources.

• The company's production from its three operating mines is 90% silver, which is very unusual. Most companies calling themselves silver companies actually produce only 40-60% silver and report their entire production as silver equivalents. Very few companies actually have over 70% of their revenues associated with silver. Silver Wheaton is the only company whose revenue is 100% from silver and First Majestic Silver is one of the few others with a very high percentage of production attributable to silver. This should matter to investors because silver resources and production are typically valued at a significant premium to base metals and even gold. This was, in fact, the very reason why Silver Wheaton was spun off from a gold company in the first place. Yet another consideration here is that base metal prices have increased significantly more than silver prices in the past 5 years, providing silver with the room to outperform base metals in the next few years. Furthermore, a possible economic slowdown during 2007 could pressure base metal prices more than silver. This is because gold and silver prices are closely correlated, but the gold price is not as closely correlated with economic cycles as base metal prices. If silver does turn out to be the best of both worlds, miners with high silver content in their production and resource base could fare better than other resource investments in the next few years regardless of the economic climate.

• First Majestic Silver has three producing silver mines; the La Parrilla, the San Martin, and the La Encantada. Most of the other silver companies have a single operating mine which of course increases the risk to shareholders if any problem may arise at their single mine. The flip side of this is that the management of three mines may create higher overhead and more management challenges for First Majestic Silver, but the cost clearly outweighs the benefit of spreading production risk across three projects.

• In addition to the three producing mines, First Majestic Silver owns several other advanced stage silver properties and previous mining operations. They are as follows: La Verda, where two rigs are currently drilling, La Perseverancia, San Juan, and Las Cotorras. These properties represent planning for future growth since management is concentrating on maximizing production at the present time with the three main mines noted above.

I am working on a comparable analysis for the remaining company on my "value strategy" list, Impact Silver, which should be released shortly. There may also be other companies worthy of consideration in the future using our criteria, but these four appear to be the most mature, proven successful junior silver producers currently out there, and therefore we believe they may be the least risky while still possessing high return potential in the near term.

By way of disclosure, I own shares of all the companies featured in this "value strategy" series. Also, no one has asked or paid me to write these articles.

**

Don Hansen is a retired entrepreneur who has been investing in silver mining stocks since 2001.

Disclaimer: We hope others will find this approach interesting and useful in making their investment decisions but we caution all investors that this is not an investment recommendation and that each investor must consider his or her own investment criteria, horizon, suitability and other factors before making an investment in these or any other stocks. Inexperienced investors should consult with a registered investment advisor. Information contained herein is believed to be accurate but we make no guarantees to that effect. We are under no obligation to correct errors or update any information, which is only timely as of the date of publication. Forward-looking statements and estimates are the author's own opinion only and any information obtained directly or indirectly from the company is protected by safe harbor laws. Furthermore, all viewpoints expressed herein are solely those of the author and do not necessarily represent the opinions of www.silveraxis.com. The author and persons associated with www.silveraxis.com own shares in all of the companies mentioned and therefore are biased in their favor. No compensation was received from the companies mentioned nor was the author asked by anyone to produce this commentary.

Copyright © 2006 Don Hansen - contact www.silveraxis.com for reprint permission