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

I would like to call the Annual General Meeting of First Majestic Silver Corp. to order. My name is Douglas Penrose, and I am the Chair of the Board and a director of the company. We are pleased to host -- hold 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 1, 2021, 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 questions of 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 Trust Company of Canada, 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 1, 2021 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 provide 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.

There's one shareholder present in person holding 2,112 shares and 188 shareholders present by proxy holding 97,418,598 shares for a total of 97,420,710 shares, which is 43.72% of the 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 the 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 ended December 31, 2020, and the auditor's annual report thereon are available on the company's website and also on the virtual meeting platform. Accordingly, I will consider them tabled for review. We will conduct the votes on the matters before us by a 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. Proxy votes received prior to the meeting will be displayed. Once discussion on all items of business has concluded, I will give you a minute to enter your votes and then declare voting closed on all resolutions. Once the poll is closed, the results showing 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 while it is 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. Are there any questions?

There are no questions.

As there are no questions, 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 April 22, 2021. As no such nominations were received, the nominees are those persons who were nominated by management. Management has nominated Keith Neumeyer, Marjorie Co, Thomas Fudge, Jr., Ana Lopez, Douglas Penrose and Jean des Rivières for election as directors for the ensuing year, and each is consented to act as a director. Are there any questions?

There are no questions.

As there are no questions, 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 director -- directors hereby are authorized to fix the remuneration to be paid to the auditors. Are there any questions?

There are no questions.

As there are no questions, please cast your votes on item 3 before I 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. Are there any questions?

There are no questions.

As there are no questions, please cast your votes on item 4 before we move on to item 5. Please vote now. [Voting]

As there is no -- is there any further business to be conducted? As there is no further business, I propose that the formal portion of the 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 poll on all resolutions to allow -- I will close the polls on all online resolutions in 1 minute to allow online views to catch up. [Voting]

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

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, Marjorie Co, Thomas Fudge, Jr., Ana Lopez, Douglas Penrose, Jean des Rivières. On the resolution approving the appointment of the auditors, I declare the resolution carried and Deloitte LLP is appointed to serve as auditors for 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.

Thank you, Connie. I declare the formal portion of the meeting concluded. Before I introduce Keith Neumeyer, I will make a short presentation on our activities over the past year. 2020 was an unprecedented year for us as we faced the challenges presented by the COVID-19 pandemic, which impacted people and economies all over the world. As a result, we were forced to shut down our operations in Mexico for parts of April and May. We commenced reopening activities in May when the government ruled mining to be an essential service. I commend our team, led by our Chief Operating Officer, Steve Holmes, for their actions in quickly providing protocols for protecting our workers and educating and providing medical assistance to help protect the communities in which we operate. Despite the setbacks in Q1 and Q2 as a result of the shutdown of our mines, First Majestic generated record quarterly revenues, cash flows and earnings in Q3 and Q4, along with reductions in operating costs. Better metal prices helped our performance but so did economies and higher production. As a result, our financial performance ended the year well, with revenues of $363.9 million, matching revenues for the previous year. Net earnings for the year were $23.1 million compared to a net loss of $40.5 million in -- for the previous year. Another highlight of the year was the work done by the First Majestic team on the acquisition of the Jerritt Canyon Gold Mine located in Elko County, Nevada, which completed April 30, 2021. Together with First Majestic's existing 3 operating mines -- silver mines in Mexico, the combined company will be a premier North America gold and silver producer. It has been a busy year for the Board, and I'm pleased to welcome new -- 2 new directors, both of whom bring many years of valuable mining experience to the Board. The Board of Directors has appointed Mr. Thomas Fudge as a director of the company effective February 17, 2021. Mr. Fudge brings over 42 years of professional mining experience, having previously worked with companies, including Tahoe Resources, Alexco Resources, Hecla Mining and Sunshine Precious Metals. Mr. Fudge holds a Bachelor of Science degree in Mining Engineering from Michigan Technological University and has overseen numerous major mining construction projects in the United States, Mexico, Venezuela, Yukon Territory, Guatemala and Peru. The Board of Directors has also appointed Jean des Rivières as a director of the company effective March 31, 2021. Mr. des Rivières has worked in over 50 countries over the past 35 years and brings a wealth of knowledge in exploration and the global mining industry. He most recently held the position of Vice President, Metals Exploration, at BHP and has previously held management and technical positions at Rio Algom, BHP and Noranda. Mr. des Rivières has a Bachelor of Science degree in Geology from the Université du Québec à Montréal and a Master of Science in Geology from École Polytechnique de Montréal from the University of Montréal. Finally, on behalf of the Board, we bid a fond farewell to Rob McCallum, a director and good friend, who has served on the Board for over the past 15 years. Rob has brought a lifetime of mining experience to the Board as the mining engineer's contributions to the Board have been invaluable. He is always well prepared at Board meetings, asks the tough questions and holds everybody accountable. Rob has always been generous with his time and loved to teach and share his knowledge. We will miss Rob as a Board member but are fortunate Rob -- that Rob will stay on until December as an adviser to the Board. Rob, on behalf of the Board, we thank you for your contributions to First Majestic. Keith Neumeyer will now make a presentation on the activities of First Majestic. And following Keith's presentation, we will have -- we will open the floor to any questions that you may have. Thank you.

Thanks, Doug. I appreciate that. And your comments about Robert as well are very well-deserved. He's been with us for, well, really since the beginning. And having him depart after 15 years is going to leave a hole that we're all going to remember. And I'm sure Robert's listening right now and a very well-respected individual among our team, obviously. So let me just get into the presentation then. I have 2 screens here. Hold on. Just waiting for it to load on my end, [ we'll have 1 second here ]. So who's ever listening, how do I get this thing to be large on my screen? Because yesterday, during the trial, on my iPad, I could see the entire thing. And now, on my computer, it's a small screen. So I need some assistance from tech.

We can -- we'll be back in a minute.

Okay. Welcome again, everyone. And you would think, after several thousand Zoom meetings in -- over the last 18 months, we'll have figured out this kind of technology by now, but obviously, that's not the case. But let's just get into the presentation. As Doug said, 2020 was quite the challenging year, with COVID hitting us, hitting the world. We did lose some production. We did lose almost 2 months of production, unfortunately. We did, under Mexican legislation, have a large portion of our workforce deemed vulnerable. As you can see on this slide, 18% of 55,000 employees, it's a pretty big number. That has reduced over time. Thank goodness. Starting the year, we're at 9%. We're now at about a little less than -- well, approximately 0.5%. So people are going back to work, which is great to see, and it was quite the challenge. We still obviously have many protocols in place and procedures, testing areas, laboratories, all still social distancing, and all the things that are necessary to do to keep people safe are still very, very much in place. And we're very, very active to keep everyone as safe, as I said. We have -- I'm very proud of the team throughout the operation. So Steve Holmes, our COO, has led the GMs in several initiatives throughout all the operations in order to set up safe areas and testing facilities and contribution to the communities and also the state, in Durango, by the contribution of a laboratory, which we had financial commitment from Wheaton Precious Metals. And of course, Sandstorm as well put a little bit of money into the Sonora state area, or Banámichi, to be more specific. So it is a great collective effort from all our teams throughout the business. And we got through it, and I think the worst is hopefully behind us. But always, we have to keep a lot of these controls and procedures in place for the foreseeable future. Going into some of our major contributions or achievements in 2020, with a good year of production of silver, almost reaching our top end of our range. La Encantada had its best year ever since we've owned that asset. That was due to grade a lot. And of course, recoveries improved there as well due to the ore type. It was just a great year for La Encantada all around. We did end up getting the HIG mill, interestingly enough, delivered to San Dimas. Right in the middle of the pandemic, the government allowed us to transport this very, very large piece of equipment, which landed at Mazatlan on the Pacific Ocean or the Pacific port to Mazatlan. And we had to truck this HIG mill into San Dimas, which was quite a challenge. And it was actually better, I think, that we did get the permit because there was no one on the highways. If it was probably any other time, that might have actually been more difficult to transport that piece of equipment. But very successfully done, it's now sitting on site. We'll get into San Dimas in a few minutes. We did end up doing a deal with our first stream, the Springpole Silver Stream, which was owned by First Mining Gold. Of course, First Majestic Silver is a shareholder of First Mining Gold, and it's interesting investment from our perspective. I think it was a win-win for everyone. On the M&A side, Doug did mention Jerritt Canyon, which I'll talk about in a few minutes, but that's for 2021. But in 2020, we successfully sold or JV-ed 2 assets, the Plomosas project and the La Joya project, which they're in very good hands, with silver dollar and GSR to silver, are doing some pretty good work on those 2 assets, and we're obviously extremely large shareholders of both of those companies, which was nice to see. Some financial highlights. I'm not going to get into all of it. Doug read off some of the key numbers here. But interestingly enough, we did produce less metal in 2020 compared to 2019. But the revenues were the same, as quite coincidentally, I think it's fascinating to see that we're exactly the same revenue year-over-year despite the lower production, but that's all to do with price. And obviously, profitability was important for 2020. Looking at the assets, we're no longer one country, one metal. With the addition of Jerritt Canyon, we've added some more gold, which we'll also cover in a few minutes, but we're now covering 2 countries. And our first investment outside of Mexico, of 19 years or coming on to 19 years, in the state of Nevada, one of the best jurisdictions there is, in my opinion, for mining in the world, and it's nice to have now 2 countries in our portfolio, in the primary assets. The biggest mine is still San Dimas. The second largest mine would be Jerritt Canyon. The third largest mine would be Santa Elena, then led by La Encantada. The nice thing about these 4 mines is that they're all doré producers. And I can't express enough how important it is to be a doré producer versus a concentrate producer. As a result of the Jerritt Canyon acquisition, many of you probably saw our news release going back to January 2021, where we stated in my quote that our goal was to get up to about 33 million ounces of silver equivalent by the end of 2023 because we do have a 3-year plan or a 3-year model to get up to those types of production numbers. But that was just based on Mexico. Now with the Jerritt Canyon acquisition, we're already there. So if you really want to extrapolate some numbers and then look at what's going to happen in 2023 and 2024, I think we're going to be probably north of 40 million silver equivalent ounces by that time. So pretty exciting growth period that we're entering into. Again, it's not the first time we've grown the business, of course. Every M&A transaction we've done always adds interesting components to the business, and Jerritt Canyon, of course, is going to do that. Now this capital expenditure or capital investment slide does not include Jerritt Canyon. This is what our guidance was that we put out in January. We will be updating our guidance in July, and the July guidance will include Jerritt Canyon. So look for that because we're going to be changing some of these numbers and moving things around a little bit. So we really look for that. We do know that Jerritt Canyon has suffered from a lack of exploration dollars and a lack of investment in development. And these are things that we're going to be bringing to the table. And so look for that number. Now when it comes to acquisitions, I have been asked this question a number of times, why Nevada and why buy a gold mine or a mine that's producing basically 100% gold. There is a small amount of silver that Jerritt Canyon does produce, but nevertheless, it's a fair question. And when we look at M&A transactions, there's a few key components that we need to look at as a management team, and one is land tenure. That's always the most critical component of any acquisition in the mining business. You've got to be in a jurisdiction in the world that you can be assured that you've got good land tenure, good mining regulations, decent tax structures and all those types of issues that can affect mining companies. Nevada checks that box with no issue at all. Is there a geological upside? Can the life of mine be increased? Now we think, yes, the answer to that question is, with a large land package that's been very, very underexplored. We think with our time and money and our talent, we can add ounces. And of course, once you add ounces, you're adding life of mine. So we think we can accomplish that. Can we produce more ounces, and what's the cost of that? The nice thing about Jerritt Canyon is that the mill has a 4,500 tonne per day capacity. Actually, it's probably name-plated at 5,000, but for the purpose of this presentation, we're stating 4,500. The roaster, interestingly enough, has a capacity of 6,000. It's never reached those numbers before, but there's a lot of room in this mill to expand this operation, which we intend to do over the next couple of years. So in 2020, this mine produced 112,000 ounces of gold. If you go back a decade, it actually produced about 300,000 ounces of gold. Now we don't have projections to get it up at those types of numbers. But we think over the next 2 to 3 years, we can see substantial growth with our time and money and talent investing in this asset. So we're pretty excited about it. There is this roaster as well, which is a pretty key piece of equipment and obviously, fully permitted used right now by us as part of the production facility at Jerritt Canyon. This is 1 of 3 roasters only in the entire state. The Barrick-Newmont JV owns the other 2, which are full. This one is not even close to being full. So we're looking at a number of opportunities to -- in the region to possibly add feed to this roaster. In our economic analysis, we didn't include any tolling. But if it does happen, that could add some significant upside to the profitability of this operation. So only time will tell. And one of the things we're going to be doing is a short-term project, like a high-priority project, is joining these 2 mines on the ground. All the production currently comes from the SSX mine and the Smith mine. There are some surrounding open pits that were in production in the '90s that appear to have interesting grades, and we are examining currently those open pits. We're hoping maybe we can start getting in there this year. But obviously, we've only owned the asset for a month. So it takes time to put planning together and potential permitting together as well. So it might not be the story for 2021. It could be more of a 2022 story. But we are working on potentially looking at these open pits, due to the current environment, with much higher gold prices, obviously. But that's a bit of a longer-term plan. The short-term plan is to join the SSX mine with the Smith mine underground. Right now, the ore is being extracted individually and being transported on surface. We think we can reduce costs and improve profitability and so on by joining these 2 mines in the ground. It will take about 8 or so months to accomplish that, but it is one of our short-term goals. And we're also going to use that drift, which will be about a mile long approximately, for exploration studies which will be quite [ stuffed ]. So going to San Dimas. Most of the people listening to this are pretty familiar with this mine. It's been our -- in our portfolio since May of 2018. This is where the HIG mill was delivered last summer. Unfortunately, the plan of installing it was -- it has been delayed due to COVID. We -- due to our commitments within the community, we've had to curtail the use of outside contractors, obviously just to prevent the spread of COVID. So that has slowed down this project significantly. Look for guidance in July because this is still a high-priority project for us. We hope to get it completed within the next 1 to 2 years. It has started, but it is currently suspended. When we bought the operation, we were only running at about 1,700 tonnes per day. We've now gotten up to 2,200 tonnes per day or just slightly higher than that, which is a pretty good achievement in the south. But we -- our ultimate goal is to get this facility up to 3,000 tonnes per day, which will obviously be a substantial gain in production for this operation and of course, will likely lower costs substantially as well. Santa Elena, a lot of money has been spent here over the last couple of years. This has been in our portfolio since October 2015. And recoveries back at that point were 65%, and a lot of metal was going into waste at that time. And today, the recoveries here are 95%. And that's due to our investment through the technologies that we brought into this facility and really improved it. It's gone through a couple of challenges over the last couple of quarters due to the orebody changing. It changed shape and angle, and we had to replace them or use different types of equipment to facilitate the new types of mining that is currently going on. And that really took most of the last quarter -- or in Q4. We had noticed in Q3, we started to mitigate in Q4, and the brunt of the issues really occurred in Q1. I can suggest that Q2 is looking much better. April and May have been pretty good months for Santa Elena. So I'm anxious to get those numbers out in our next quarterly report. But more importantly than that, the Santa Elena operation is really a -- is -- will be a combination of 2 different orebodies: the Santa Elena main orebody, which is the combination of a couple of high-grade veins and so on, but we call it Santa Elena for the purpose of this presentation; and then the Ermitaño project, which is about 4 kilometers away, and that will be a primary feed coming into this mill starting in Q1 2022. We've been developing this asset for -- well, since 2016, when we first discovered it. And before I get into the next slide, I will be talking a little bit more about Ermitaño. This property is really in the Nevada of Mexico. This is a very well-known gold-silver cap, and you can see the size of this land package. This is a 100-plus-thousand hectare land package, 250,000 acres thereabouts, and it's just an enormous property. Many people listening probably have heard of SilverCrest, which is some of the cheapest property, where that red dot, just above that green square, called Las Chispas in the white area, that's SilverCrest property. We surround them with El Gachi and Los Hernandez. We currently are drilling in Los Hernandez, a couple of kilometers south of Las Chispas discovery. And we've got a couple of rigs in Santa Elena as well as a couple of rigs in Ermitaño. So we're actively exploring and developing ounces in this region of Mexico. And in our opinion, this mill will be fed for many decades into the future with ore coming from this property. So this is the Ermitaño. You can see the pretty decent gold grades here with some modest silver grades. This ore is about 10x higher-grade than 40% of the feed that's currently going into the mill, of which is old heap dumps. So it's going to be pretty interesting. Despite the fact that the throughput will remain the same at the mill, the grades will go up nicely. And so we're expecting to see higher production and lower costs as a result of the speed coming in. It was delayed. You can see the camp that we built, a similar camp that we had to build in San Dimas, which I already talked about just briefly. But this is -- we had to do this to protect the local community as part of the request that came in. And so we had to spend the time and money and of course, delay the project. But we're now back on track. We're expecting to have a substantial amount of ore on surface. If you can see on this slide, 50,000 to 60,000 tonnes of stockpile is expected to be on surface by the end of December of 2021. And we're expecting to start feeding this mill in Q1 2022. And so 2022 for Santa Elena will be a pretty interesting year. One of the key points here is also that -- you'll see a slide coming up at the end of this presentation, but we did convert Santa Elena from diesel towards LNG. It took us almost 2 years to do it, but it's finally now done. We're somewhere around 85%, 90% of total energy being consumed at Ermitaño -- or pardon me, at Santa Elena, being supplied by liquid natural gas versus diesel. So that's going to be a huge savings for us for this operation. So it's now -- we don't have one single mine left in our portfolio that is currently using diesel, except for [ the smallest ] things. But from a primary energy source, we're either on the grid or LNG, which is not what that used to be. Oh, and this is the LNG plant. Pretty massive facilities. You can see that no wonder why it took 18 months to build it. And then it cost us $1 million. The reason for that is because we signed a long-term contract with the builder of this to supply the liquid natural gas on a contracted basis, and that allows us to make long-term planning. But we don't have to worry about the transport of energy. It's all supplied by this company that built this facility for us. So it's a fixed rate, and it saves us a substantial amount of investment in energy. And this is our purity. Now it -- we did go down slightly, 2020. I think we're in the 65% range on revenue curves for silver, 45% gold. Now because of Jerritt Canyon, this will affect our purity. We're still right up there. When you look at our peers, we're still the purest. We still very much focus on silver. I love silver. Many of you know that I'm extremely bullish on silver. I love gold as well, but we're always looking for good silver assets to hopefully improve this purity, but it's something we do pay a lot of attention to. And that's it for my presentation. If there's any questions, I'm happy to take them.

There are no questions at this time.

Okay. Well, that's great then. This -- and thanks for everyone joining us today. This concludes the management's presentation. We will now have a brief -- sorry, we've already done that. The question-ask period is now over. We will not be taking any further questions. Thank you for attending this meeting.

Great.