First Majestic Silver Corp. (AG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the First Majestic Silver Corp. Annual General Meeting. I would now like to turn over the meeting to Douglas Penrose.

I would like to call in the Annual General Meeting of First Majestic Silver Corp. to order. My name is Douglas Penrose, and I am the Chairman of the Board and a director of the company. We are pleased to host the meeting through this virtual meeting platform accessible to all our shareholders regardless of physical location to participate, submit questions and vote. Keith Neumeyer, President, CEO and Director; and Connie Lillico, Corporate Secretary, will also be present in today's virtual meeting. Only registered shareholders who held shares in their name as of April 10, 2020, the record date of this meeting, or their validly appointed proxy holders are entitled to vote at this meeting. If there are shareholders present who would like to ask question to the management, there will be a question period and discussion session at the conclusion of the meeting. With the consent of the meeting, I will act as chairman of the meeting; and Connie Lillico will act as secretary of the meeting. The company's register and transfer agent is Computershare Trust Company of Canada. Vanessa Lee, on behalf of Computershare, will act as scrutineer of the meeting. The notice of meeting, notice and access notification and form of proxy were mailed to the company's shareholders of record on April 10, 2020, as evidenced by the proof of mailing letter of Computershare Trust Company of Canada. As such, proper notice of the meeting has been given. The articles of the company provides that a quorum for the transaction of business at a meeting of shareholders is 2 persons who are or who represent by proxy shareholders who, in the aggregate, hold at least 25% of the issued shares entitled to be voted at the meeting. Connie Lillico will now read the preliminary scrutineer's report. Connie?

There are 2 shareholders in person representing 1,445,176 shares, 201 shareholders by proxy representing 94,531,187 shares, for a total of 95,976,363 shares, which is 45.8% of the shares -- issued shares entitled to be voted at this meeting.

As appropriate notice of the meeting has been given and a quorum is present, I now declare this meeting to be regularly called and properly constituted for the transaction of business. The company's annual report, including the financial statements for the fiscal year ending December 31, 2019, and the auditor's report thereon, are available on the company's website and also on the virtual meeting platform. Accordingly, I will consider them tables for review. We will conduct votes on the matters before us via poll. On a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until conclusion of discussion on each resolution prior to casting your vote. There will be an opportunity to ask questions on each resolution in turn. Once discussion on all items of business has concluded, I will give you a minute to enter your votes and then declare voting close on our resolutions. Once the poll is closed, the results showing the combined -- the combination of votes cast and proxies received prior to the meeting will be displayed. The results of the meeting will be released on SEDAR and available on our website. We will run through each of the items on the agenda in turn, responding to questions on that item of business brought before the meeting. I now declare the polls open on all resolutions. The first item of business is fixing the number of directors for the ensuing year. I propose a motion to fix the number of directors for the ensuing year at 6. Please cast your votes on item 1 before we move on to item 2. Please vote now. [Voting]

The next item of business is the election of the directors of the company for the ensuing year. There are 6 directors' positions to be filled. In accordance with the company's advance notice policy, outside nominations were required to be received by the company by May 5, 2020. As no such nominations were received, the nominees are those whose persons who were nominated by management. Management has nominated Keith Neumeyer, Nicole Adshead-Bell, Marjorie Co, Ana Lopez, Robert McCallum and Douglas Penrose for election as directors for the ensuing year, and each has consented to act as a director. Please cast your votes on item 2 before we move on to item 3. Please vote now. [Voting]

The next item of business is to appoint auditors for the ensuing year and to authorize the directors to fix the auditors' remuneration for the ensuing year. As provided for in the information circular, it is proposed that Deloitte LLP be appointed to serve as auditors of the company for the ensuing year. I propose the following resolution that Deloitte LLP be appointed as auditors of the company to hold office until the close of the next Annual General Meeting of the company and that the directors are hereby authorized to fix the remuneration to be paid to the auditors. Please cast your votes on item 3 now before we move on to item 4. Please vote now. [Voting]

The next item of business is to vote on an advisory resolution with respect to the company's approach to executive compensation. The resolution is as follows: that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation disclosed in the company's management information circular for this meeting. Please vote now. [Voting]

As there is no further business -- sorry. Is there any further business? As there is no further business, I propose that the formal portion of this meeting be concluded. For those of you who have not voted on all of the resolutions, please do so now as I will shortly close the poll. I will close the polls on all resolutions in 2 minutes to allow online views to catch up. [Voting]

The polls are now closed, and I will ask Connie Lillico to report on the results. Connie?

On the number of directors, I declare the resolution carried, and the number of directors is set at 6. On the election of directors, the following persons are hereby declared elected as directors for the ensuing year: Keith Neumeyer, Nicole Adshead-Bell, Marjorie Co, Ana Lopez, Robert McCallum and Douglas Penrose. On the resolution approving the appointment of the auditors, I declare the resolution carried, and Deloitte LLP is appointed to serve as auditors of the company for the ensuing year, and the directors have been authorized to fix their remuneration. On the say-on-pay advisory vote, the shareholders have voted to accept the approach to executive compensation disclosed in the company's management information circular for this meeting, and the resolution has been approved.

I declare the formal portion of the meeting concluded. I will make -- I will now make a short presentation. Thank you for attending the Annual General Meeting of First Majestic Silver Corp. I am pleased to report that after a year of organizational and strategic changes, including the temporary suspension of operations at San Martin, La Parrilla and Del Toro, it is rewarding to see such good results. We closed the year with record revenues, record production, our lowest cash cost per ounce in years and the highest cash balances in our history. Highlights for the year include: record silver equivalent production of 25.6 million ounces, a 15% increase over the previous year; cash costs of $5.16 per ounce of silver, a decrease of 26% from the previous year; a record of 86% average silver recovery in 2019; $169 million in treasury at year-end, a record. In 2019, we installed our first HIG mill, high-intensity grinding mill, in our Santa Elena mine, which is giving us higher-than-expected recoveries of gold and silver. We also continue to focus on growth through stewardship. This includes our long-standing commitment to the safety and well-being of our people who work for the company and who live in the communities in which we operate. I would like to congratulate our team at First Majestic as First Majestic has been recognized as a socially responsible company by Mexico for the 12th consecutive year. Finally, I would like to thank our employees for leading First Majestic's response to the COVID-19 outbreak. The planning and execution of procedures to protect our employees and the communities in which we work has been first-rate. I congratulate and thank our employees for a job well done. I would now like to introduce our President and Chief Executive Officer, Keith Neumeyer, who will make a presentation on the activities at First Majestic. Following Keith's presentation, we will open the floor to any questions that you may have. Keith?

Hello, everyone, and thank you, Doug, for that introduction. I hope you're all enjoying this virtual approach to our AGM. It's new for everyone, new for -- we're struggling through this as best as we can. I hope the experience has been okay for all those listening. I will get into this presentation. And at the end, if there are questions, we will be open to any of your questions. So jumping into my presentation for today, forward-looking statement. At our 2019 highlights, there was -- 2019 ended up to be a pretty good year all around, particularly Q3 and Q4, with the addition of the HIG mill, which was delivered into Mexico in January of 2019, and it was up and running by July, pretty amazing 6 months to get it completely up and running. Of course, there was a lot of preparation ahead of time to get to that point, but nevertheless, it's today running again. We just turned it on again in the last week as a result of the shutdown of COVID. But it is the first HIG mill of its kind in all of Latin America currently operating, and it's the only HIG mill as far as we know that's getting direct ore feed from the mine. So from a technological perspective, it's quite the coup, and our team deserves a lot of congratulations as a result of this. And that's allowing us also the -- what we've learned with this installation, we're -- we'll be using that knowledge in both our San Dimas and La Encantada operations over the coming period, which I'll discuss a little bit further. At Santa Elena, we did break ground at Ermitaño. We had been shut down in the last couple of months, so not much has happened, but we are hoping to start to extract ore out of the Ermitaño in early 2021. It will still be early 2021, but it's likely going to be a couple of months later. We'll be putting our renewed guidance out in the next month or so. The planning for the optimization of San Dimas also took place in 2019. There's a lot of investment going into San Dimas over the next 2 years, and we just broke ground before COVID occurred. And the HIG mill did arrive on site a couple of weeks ago during the COVID crisis. Actually, it was very nice for the government to give us a permit to allow the transport of this HIG mill on the highway. It's a big, huge piece of equipment, as you can imagine, and with the highways quite vacant due to the closure of the country or closure of many countries around the world. It was actually a very convenient time to transport this very, very heavy piece of equipment from the coast of Mexico in San Dimas operation, which did arrive very successfully. We've also reduced our costs substantially in San Dimas in 2019. Recoveries, we've touched on in Doug's presentation. Our recoveries have improved nicely at La Encantada but throughout the entire business. And that's a result of some internal management changes we've made and as well as some technologies that we've been adding to the business. So La Encantada has not achieved these types of recoveries since we've owned it, dating back to 2005, which is obviously pretty good. So that mine went from a 400,000-ounce producer to a 900,000-ounce producer, all within a matter of a couple of months in mid-2019, changing the economics of La Encantada quite substantially in 2019. Going back to recoveries for a sec, we are shooting to increase recoveries even further, which I do have a slide on in the next couple of slides. So jumping along to our share price performance. In 2019, we were the best-performing stock in the space. Obviously, it's nice to see that as a result of some of the improvements that we made throughout the business. I think Mexico has come under some scrutiny from investors, and I think that some of the Mexican producers like Fist Majestic have underperformed the space in 2020. So it will be interesting to see how we end 2020, but 2019 was definitely a very good year for us. Going at some of the financial highlights. As Doug mentioned, we're record year, record production, record silver equivalent production. Costs are coming down substantially. We expect this to continue. There's always drivers of the costs. For example, energy costs and other inputs and, of course, labor costs are things that are outside our control in a lot of cases. But things like technology innovation are really the areas that we're focusing on in 2019 and beyond. And in 2020 and 2021, we've got a lot of exciting things we're doing and we're hoping to see even further improvements. And obviously, with the shutdown of La Parrilla and Del Toro, it is assisting us in our cost for 2020. There is some holding costs there, of course, but La Parrilla and Del Toro are concentrate producers. They produce a small amount of lead and zinc concentrate, which we were not making very much money on. And with those 2 products now not being produced, in 2020, we're just simply producing gold and silver, which is actually the first time in the company's history since 2006 that we've only produced the 2 metals. And those metals are produced in the form of doré bars. So jumping along to financial highlights or corporate highlights. The treasury is strong. Of course, we do have a convertible debenture outstanding, very, very low interest rates. You see our top shareholders on this slide, very much skewed towards passive investments, as you can tell, and some of the research coverage that we currently have. Wheaton is obviously a very large shareholder of ours, and there's the distribution between retail and institutional on that slide. Going to the next slide. We've -- one thing you should be aware of if you're not, we have suspended our guidance. We put our guidance out, generally speaking, in January and July of each year. And of course, this year, we did the same thing. We did pull it in April. We hope to reinstate our guidance in the first or second week of July. So look for that in these numbers or at least 2020 numbers will be updated. And I removed the other guidance slides from our presentation because there's really very little point in discussing them because they're not currently our valid guidance that we're expecting anyone to follow. But from an exploration standpoint, despite the fact our exploration programs did stop as a result of COVID, we are working to get them reinstated. We had an original goal of investing and drilling more than 200,000 meters of drilling in throughout the operations, and this number will be updated. But the point of the slide is more to show the reserve growth and the grade growth. On the very bottom bar there, you can see that the grades have improved nicely over the last few years, and we're hoping that will remain much the same. We're going to San Dimas. So this has really become our cornerstone asset. We bought this in May of 2018. You can see by looking at the slide that it's a very nice high-grade operation with 280 grams silver and 3.4 grams gold. Our costs are quite low with the cash costs and all-in sustaining costs there, and we think this might -- could be a lot bigger over time. There's an investment that we're doing over the next 3 years which is going to completely improve this operation. The mill itself has not been invested in for something in the order of 30 years. And many of the investments that we've done throughout the business, mostly on the innovation side, whether it's automation or whether it's just simple things like belt speeds or automatic feeding of reagents into the process, these things are generally done manually, and it can -- they're really low-hanging fruit when it comes to automating these processes and bringing the cost down in this operation. So we did break ground on this investment. It's about a 2-, 2.5-year investment where we'll be spending somewhere close to $100 million over the next 3 years, which includes the upgrade of the hydro dam as well. But at the end of this investment, this is going to be a larger operation, and we expect it's going to be even much more cost-effective once the investment is complete. So I'm pretty excited about that, and we are reinstating all the contractors. And all this work will commence over the next 30 days when things come back to normal with COVID. And as many people know, Mexico was deemed essential in Mexico as well, which has helped our operations reinstate quicker than some other industries. So just jumping to Santa Elena. This is a feeding -- a blending operation. Now Santa Elena has always been fed -- or this mill has always been fed with 60% feed from the mine and 40% feed from the old heap pads as this used to be an old open pit. And it is still a very low-cost producer, again, a doré producer similar to San Dimas, which I should have mentioned. And as a result of this blend, as many of you know who's been listening to me for years, that the Ermitaño project, this one here, was discovered back in 2017. And this is 4 kilometers away from the current milling operation. And we've been -- as you can see looking at this photo, we broke ground on the portal late in 2019. We did shut it down over the last couple of months as a result of COVID, but it's now being reinstated and we hope to start developing again in the next week or 2. The idea is to do about 3.5 kilometers of development here, between now and early 2021, and get this ore into the mill. We're working on transport issues right now, whether it's going to be conveyor-ed or trucked, and there's still a lot of logistics being worked on. But we're very excited about getting this ore into the mill because it will displace the 40% heap material that's going into the mill. And this -- the grade of this material is actually 10x higher grade than the heap material that's being fed to the mill. So despite the fact we are making money blending on a 60-40 basis, that 40% will become this feed, and this feed is 10x higher grade than the heap feed, which despite the fact that throughput will stay the same at 3,000 tonnes a day, as you can see here, head grades are going to go up nicely, which should impact production and, obviously, costs as well. So we're anxious to get this up and running. And the focus at Santa Elena is definitely on this project. And this is the regional exploration that was going on. It's going to be all reinstated here shortly. The Ermitaño, as you can see in that red dot, is 4 kilometers away from that little cross you see in the pink area, where that's the location of the mill. The photograph of -- is one of the major outcrops there. That red dot you see, which is the cheapest, which is SilverCrest's property in the white square there, where they've had their major discovery, we do surround them with the green and the blue areas. The green area, Los Hernandez, where we did have one drill rig up to a couple of months ago drilling away, that rig will be reinstated. We're actually adding a second rig to that area, about 2 kilometers south. So there will be 2 rigs drilling that simultaneously within the next couple of months. And we're also planning on putting a third rig in the yellow area, where it says El Gachi on the other side of the white square, which is a SilverCrest property. So we're actively drilling this northern part of this property. It's a massive property. It's 100,000 acres of land -- or 200,000 acres of land, 100,000 hectares of land, and it's prolific mineralization all over the place. Our geos are extremely excited about continuing the exploration activity that's going on in this region. And in our view, this mill, the Santa Elena mill, will be having feed for several decades in the future as a result of the prolific nature of this property. Jumping along to technology. Now we've -- many of you have heard me before talk about technology and something that's very dear to me back in 2012, 2014 when I decided to put together a sophisticated team of individuals who were instructed to look for every way of saving money as possible through the use of technology. We adopted many technologies, and this one is focusing on one particular part of the business which is the crushing and grinding area of the mill. Now this HIG mill, which is shown on these 2 photographs, I actually took the one on the left here where it's open. I flew to Austria in August of 2018. I watched this machine being built. And it was, lo and behold, shipped, put on a boat a few months later and arrived in Mexico in January of 2019 and installed, up and running by July, as I said earlier in my presentation. And it's been quite the achievement. It's really turned a lot of heads. And when it comes down to its grind size -- so we prove that if you can grind smaller particles, you'll get more metal of that -- those particles, doesn't take brain surgery to figure that one out. But it is difficult to achieve with the technologies that are currently available to the mining sector. And the mining sector is known for moving quite slowly and not really enjoying -- taking on new challenges and -- because there obviously are risks when you're adopting new technologies. But in our case, it's worked out extremely well. When we did our studies or economic analysis, we needed 2% more silver and 2% more gold to make this installation economic, as you can see on the slide that we've actually achieved over 5% of silver and gold as well. It's not shown on here, but it's similar for both metals. So this has turned out to be quite a coup for this operation. And the mining sector as a whole, in my opinion, is going to be adopting this or similar technologies over the coming decade. We're getting rid of ball mills and getting rid of steel balls and just using this type of grinding material -- or grinding machine as it does use less electricity, uses half the electricity. It doesn't use balls, and one thing that we -- steel balls. And one thing we did also discover is the fact that in a ball mill, which you can see in this slide here, on the right, there's a lot of steel balls in there, and that steel actually gets into the ore. And the cyanide actually is affected by that steel. So if you actually don't need as many steel balls in your ball mill and you're consuming less steel, you're actually consuming less cyanide as well, which is very environmentally fantastic. And also from a cost perspective, it's also good as well. So jumping along. And I talked about different technologies. And if you go back to 2014, as the slide does, you see on the blue bar on the top, these are several different things that we did as a business to really achieve the things that we've been working on achieving and with a primary focus on recoveries. And there's other things we did as well, but this is just -- for the purpose of this presentation, we've selected this. And going back to 2014, you see that we had about mid-60s or mid- to high 60s in recovery. So a lot of metal was going to waste. We had over 30% of our silver just going into waste in the tailings, and that's a lot of metal. The mining sector -- this is not that unusual. Of course, we had some mines that had less recovery driving down that overall average. We had other mines that had better recovery, which was driving it up. But as an overall average, there are several mines out there. As an investor in the mining sector myself, I know there's mines that have 70%, 80% recovery, and that's an accepted recovery rate at many mines globally. But there are technologies to improve that, and we've proven this by adopting these technologies. We're now approaching 90% total global recovery in all our mines, and that's huge. This is just profit that goes right to your bottom line. Our metallurgists think that they could actually get average recoveries up to close to 95% on a global basis, and we're working to achieve that. And with the addition of the HIG mill at San Dimas and the HIG mill at La Encantada over the next 12 to 18 months, we hope to see this number improve more than it is currently at. So jumping along. We're coming to an end. You can read this slide for yourself, those of you who are watching. But I can tell you the Tayoltita mine delivered its first ore to the mill this week. I've got video sent to me from the site. It's pretty exciting to see. We spent a year rehabilitating this rail track in the old Tayoltita mine. The grades are coming out of there, look quite nice. And we're very happy to have this old mine now supply feed to the mill. There will be news on that in our guidance in early July. We hope to talk a little bit more about that. Also, the big thing is the LNG. As many of you know, La Encantada was converted over from LNG about 4 years ago, which is a big success taking that operation off of diesel. We've been working to get Santa Elena off of diesel as well, which is our last mine that's currently operating using diesel on a full-time basis, meaning. And the groundbreaking did occur on time. It has been delayed due to the COVID situation, but the crews are now getting back on site. And we hope to see that project back on its -- back on track within the next month. We hope to see it up and running by October, November. That's likely going to be somewhat delayed, but as I said earlier, we'll be putting guidance out to address the exact time lines that we're expecting. And our purity, this is pretty well known, we are the purest of the big guys in the sector with over 60% of our revenue from the sale of silver. The rest is gold. As I said earlier, we do not produce concentrates. We do not produce lead or zinc. We produce all doré bars in the form of gold and silver. And that's it for my presentation today. If there's any questions, feel free to type away. [Operator Instructions] Well, it appears there's no questions today. So if that's the case, then we're going to adjourn the meeting. Thank you for attending today's Annual General Meeting. And if you wish to have further information on the company, please feel free to contact either Todd Anthony or Mark Carruthers, and our Vancouver office would be happy to answer any of your questions. Or go to our website, firstmajestic.com. Thank you very much.